Credit Squeeze Helps Bank Claw Back Lending Stake

Sydney Morning Herald

Monday February 18, 2008

Jacob Saulwick

THE impact of the global funding crisis has reversed 15 years of fierce competition in the mortgage market, with the major banks eating into the seemingly impregnable share held by specialist rivals Aussie Home Loans, Wizard and RAMS.

The banks capitalised on the finance squeeze faced by mortgage companies by lifting their stake to 85 per cent - the highest since financial deregulation opened the market in the mid-1990s. Increased bank dominance means the shape of the home mortgage market is rapidly being redrawn.

In the past six months, mortgage brokers report that banks have zeroed in on would-be home owners as their smaller competitors have struggle to find cheap finance to underwrite their loans.

And the assault has worked. The Commonwealth Bank has been the big winner. It has lifted its share of the bank lending pool from 22.6 per cent to 23.9 per cent in the six months to December.

ANZ has been the big loser, dropping from 16.9 per cent to 12.1 per cent, while National Australia Bank's share fell from 18.6 per cent to 17.9 per cent, figures from the Australian Prudential Regulation Authority, which predate the first round of bank-driven rate rises in January, show. The other two leaders, St George and Westpac, have held steady. For consumers, the obvious concern is that competition generated by non-bank lenders, which has been the major factor in keeping mortgages relatively cheap, could start to weaken.

After all, the banks' hold over the mortgage market is at its strongest since 1995, when non-bank lenders such as Aussie Home Loans and Wizard began to take serious business from the majors.

The general manager of researcher InfoChoice, Denis Orrock, said while the five major banks were increasing their hold over the industry, competition provided by their smaller banking rivals would compensate for any weakness among the non-banks.

Indeed, small banks have done relatively well out of the debt-market turbulence in terms of market share. Excluding the big five, the rest of the banking sector increased its chunk of total mortgage lending from 16.5 per cent to 21 per cent. Among the smaller banks, Citigroup, ING Bank, Suncorp and BankWest all did well.

And while investors are itching to dump any bank that looks like facing cost pressures, the major bank's are also yet to receive the boost to revenue generated by non-Reserve Bank interest rate rises.

The principal analyst at East & Partners, Paul Dowling, said it would take between three and six months for the benefits of the Commonwealth's 0.15 percentage point premium to official interest rates to flow through to its balance sheet.

When it does, Mr Dowling said this would allow the bank to recoup some of the margin it had lost amid five years of fierce competition.

But at the same time, non-banks will remain around to ensure the banking sector remained competitive.

"The non-banks are not going to go away. It is just their natural habitat in the market may well shift," Mr Dowling said.

If funding pressures persisted, non-bank lenders would change to focus more on broking mortgages issued by the banks, rather than originating their own mortgages, he said.An article on February 18, "Credit crisis hits mortgage brokers", said the ANZ Bank's share of bank mortgage lending to home buyers had fallen from 16.9pc to 12.1pc in the six months to December 2007. The bank's share in fact fell to 16.4pc.

© 2008 Sydney Morning Herald

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