Big Four Banks Have Total Control Of Australian Mortgage Market

Post by Sharat on September 3, 2009 · Under Australian Economy, Mergers & Acquistions, Non Bank Finance, banking, home loans, interest rates, mortgages · Comment

Australia’s Big Four banking groups have come to completely control the market for mortgages, with competition beyond the majors all most non-existent, as smaller lenders struggle to compete.

Analysts fear that the majors will exit the global economic crisis with far too much market power.

Lending data, which was released on Wednesday, has added more weight to calls for Kevin Rudd’s government to either unwind sovereign funding and deposit guarantees or at least have a plan in place for eventually lifting the measure.

Smaller regional Australian banks and non bank financial companies feel that the Big Four have an unfair advantage as a result of the scheme. Whilst Federal Treasure Wayne Swan faces further pressure to increase the size of his $8 billion support package for the mortgage backed securities market, an important source of finance for regional lenders and non bank finance companies.

Growth in mortgage lending is expected to continue after the Reserve Bank of Australia, at its monthly rate setting and policy meeting on Wednesday, maintained official interest rates at half century lows. The central bank did express concerns at the growing threat of inflation, resulting in economists anticipating at least one interest rate hike before the end of the year.

On Wednesday the Australian Prudential Regulation Authority (APRA) released data showing that the Big Four banking groups in July, captured almost 100 per cent market share of the new mortgage market, valued at approximately $7 billion. Prior to the freeze in credit markets last year, the majors controlled roughly 60 per cent of the new mortgage market.

The dominance has led to regulators growing concern over lack of competition in the Australian banking landscape and opposition to the possibility of future mergers within the banking space. Last year Australian competition regulator Graham Samuel reluctantly approved CBA’s acquisition of regional lender Bankwest, approving the deal in the face of intense pressure as panic gripped financial markets, and the possibility of a collapse seemed imminent.

Non bank financial companies have also been acquired by the majors, with Wizard, RAMS and most recently Challenger Financial’s mortgage unit all having been acquired by Big Four banking groups.

The Sovereign funding guarantee means that higher rated banks such as the majors pay less for the use of the guarantee than their smaller regional rivals, resulting in lower funding costs and smaller rivals being unable to compete on mortgage pricing.

Commonwealth Bank and Westpac dominate the nation’s mortgage market, respectively writing 40 per cent and 35 per cent of new loans, the APRA figures show. St George Bank, now owned by Westpac, winning about 13 per cent of new loans, followed by NAB and ANZ.

The data from APRA shows that Australian mortgage market is extremely robust, aided by low interest rates and Federal government subsidies. The market for mortgages, after having increased by 0.8 per cent in July, has grown by an annualised rate of 9.6 per cent.

The Australian banking system was already highly concentrated before the global financial crisis, thanks to the 1990s recession, which wiped out the second tier. The four biggest banks are expected to report about $15.4 billion in profits this year, cementing their place among the world’s most successful banks.

Compare Australian Home Loans