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NAB CFO Says Golden Age Of Australian Mortgage Lending Over
A senior figure with Australian banking major, National Australia Bank (NAB) says he believes that the golden age in Australian mortgage lending, which has propelled the country’s two largest lenders into earning super profits is destined to come to an end.
Mark Joiner, NAB’s chief financial officer said that the effects of the financial crisis, had reduced effective competition in the mortgage lending market, enabling leaders CBA and Westpac to hold on to windfall games that arose as all lenders transitioned to a new global accord on bank capital.
According to Mr. Joiner, the Basel II accord, which was agreed upon in 2008 resulted in a near doubling of the banking industry’s average return on equity for a mortgage from 22 per cent to a whopping 45 per cent. The windfall was created because the agreement allowed banks to hold less capital against more secure home lending.
“I find the national sport of bank bashing a bit ironic because it tends to focus on fees and the passing on of higher funding costs, when the real windfall relates to neither of those issues. There are super profits in mortgage lending because the banks, with the transition to Basel II, took more than half the capital off the table and the margins never adjusted down to reflect that.” Mr. Joiner told The Australian.
Mr. Joiner added that he believed that average ROE’s would return to their previous levels, in large part helped by Federal Government reforms, which would cut expensive home loan exit fees, and make it easier for borrowers to switch their loans between banks.
NAB is overweight in business lending unlike its rivals CBA and Westpac, both of whom have massive mortgage books due to their acquisitions of Bankwest and St. George respectively.
NAB has undertaken a strategy of changing the dynamics of retail banking, through the slashing of fees, and offering standard variable mortgage loans at discounted levels to its rivals.
Mr. Joiner echoed BHP Billiton Chairman, and former NAB CEO Don Argus’s claim in March, that the Australian banking majors had effectively become giant building societies.
“If you get a 45 per cent ROE in home lending, why would you do anything else, particularly when the industry is looking at a period of constrained balance sheet growth? Australia should have a balanced economy; not a big skew to mortgage or business lending.” Mr Joiner said.
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