Mortgage Brokers Put Squeeze On Big Four; Anz Tops Home Loans
Sydney Morning Herald
Tuesday February 6, 2001
Australia's big four banks face a dilemma about the best way to sell home loans as the fast growth of channels such as mortgage broking threaten to squeeze lending margins further.
Monthly lending figures issued by the Australian Prudential Regulation Authority and analysed by stockbroking firm JBWere & Son show ANZ has retained its leading position of the past year, writing around 22 per cent of bank home loans, compared with its historical market share of 14 to 15 per cent.
The report showed that last year banking system assets grew 9.5 per cent to $760 billion and were up slightly during December. Home loan outstandings increased 14.4 per cent for the year and, despite concern about tighter lending standards in a weakening credit cycle, rose 1.2 per cent in December.
Were attributed the December rise to active steps taken by the banks to boost demand, including expansion and promotion of honeymoon products and fee discounting, and that the worst of the construction sector slump appeared to have passed.
But ANZ's success has been ascribed largely to its aggressive use of third-party channels such as loans written through mortgage originators and brokers, while banks such as the Commonwealth have focused on selling home loans primarily through their own branches.
JB Were analyst Mr Leigh Cronin said ANZ's strategy was paying dividends and the growth of third-party originators and brokers was forcing the other majors to follow suit. ``CBA [through Colonial] and NAB [via HomeSide brand], who have been somewhat circumspect about entering the fray, are now doing so," his report said.
He said there was yet to be a significant margin impact but upfront origination payments of 60 to 100 basis points and trailing commissions of around 0.25 per cent for these forms of distribution meant the cost would grow in significance.
``The issues to be considered by the banks revolve around, one, whether they would have got the business through their own channel and, two, the relative cost/return...versus doing so via their own distribution platform," he said.
A recent report by Macquarie Equities suggested mortgage broking accounted for about 20 per cent of home lending, and might eventually be up to half of the market in line with US experience. But a spokesman for mortgage broker Mortgage Choice, Mr Warren O'Rourke, said banks were eager to expand the use of brokers, because the broker carried the cost of finding the borrower.
The APRA data also showed a much improved performance in home lending by St George Bank, primarily because of a change in the way the bank classifies its loans.
Managing director Mr Ed O'Neal said at last year's result the market share figure did not account for a large presence in home equity loans, where borrowers can draw down part of the equity of the mortgage to invest in shares or property. The reclassification of about $1.65 billion of these loans in December to be included in the survey saw St George's home lending balance rise by $1.736 billion in December.
© 2001 Sydney Morning Herald