Australia’s two largest mortgage lenders, CBA and Westpac have gradually begun losing market share in mortgage lending to their two smaller rivals NAB and ANZ who have embarked on a strategy of attracting new customers, as they seek to protect their profits from declining margins.
CBA, along with its subsidiary Bankwest continues to remain in its position as Australia’s largest mortgage lender, with a 29.47 per cent of the Australian home loan market.
Despite its lead, CBA lost 0.1 per cent market share during September. Rival Westpac, the second largest mortgage lender saw its market share remain steady at 27.3 per cent according to data from the Australian Prudential Regulation Authority (APRA).
NAB grew its market share by 0.16 per cent, whilst NAB grew 0.05 per cent during September.
The APRA data confirms what many analysts have suspected, that the two lenders have embarked on a strategy of increasing their loan volumes as means of moderating the impact of falling net interest margins.
The strategy has had the effect of limiting revenue, since Australian banks have fought an intense battle for deposit based funding, which has forced them to pay more to attract deposits.
Despite the fact that the Big Four banks have reported record earnings in 2009/10, net interest margins for the majors declined during the second half of the financial year.
During its third quarter, Westpac said its net interest margin fell by two basis points but added that after stripping out volatile items, “the rate of decline is moderating”.
Westpac reports full year earnings on Wednesday and is expected to report that margins have stabilised.
Mortgage lending despite being a strong source of profits for banks still earns less than business loans, but represents the only segment of the credit market to display growth.
This trend resulted in the chief executives of the Big Four banks arguing for the need to lift interest rates beyond any official tightening by the Australian central bank.
NAB has the largest market share of business lending, having captured 21.43 per cent, followed by CBA which controls 19.56 per cent of the market.
The major lenders have all argued that the higher cost of retail deposit and wholesale funding requires them to raise interest.
ANZ chief executive Mike Smith last Thursday said there was now a 60 basis point gap between the interest rate paid to depositors and the rate charged borrowers.