Banking Review

Trillion dollar baby

Like overprotective parents, the Big Four banks still have
a tight rein on Australia’s residential lending playground

BY JOHN PHILLIPS

March 2010 heralded a new landmark in the Australian debt obsession, with outstanding residential lending held by banks passing one trillion dollars for the first time.

Bank residential lending surged 12 per cent, or $108 billion to $1,004 billion, for the year to March, according to Australian Prudential Regulation Authority statistics, powered by first home buyers jumping on the borrowing bandwagon to take advantage of state and federal government incentives.

However, this potential debt bubble is controlled by very few players, with the ‘Big Two’ banks holding 55.2 per cent of all bank residential lending in Australia.

Commonwealth Bank remains Australia’s biggest lender with $286 billion, or 28.5 per cent market share, with Westpac Bank not far behind with $268 billion, or 26.7 per cent market share, leaping ahead of its Big Four rivals due to takeovers and continued strong organic growth.

National Australia Bank is the third biggest lender with $146 billion (14.5 per cent market share), and Australia and New Zealand Bank fourth with $139 billion (13.9 per cent market share).

ING Direct with a mortgage book of $36 billion is the fifth biggest lender, yet market share is just 3.5 per cent, a quarter of the fourth biggest lender, highlighting the massive market share differential between the Big Four banks and other bank lenders operating in Australia.

The Tier 2 Australian bank market share struggles continue, with Suncorp ($28.6 billion and 2.8 per cent market share) ahead of Bendigo and Adelaide ($24.6 billion and 2.5 per cent market share) and Bank of Queensland ($21.6 billion and 2.2 per cent market share).

Restricted funding lines have prevented ME Bank ($16.2 billion and 1.6 per cent market share) from growing on par with system growth, with the Macquarie Bank ($14.5 billion and 1.5 per cent market share) book continuing to decline with little new lending.

AMP Bank ($8.3 billion and 0.8 per cent market share) has increased retail banking advertising awareness, but this has yet to yield any significant improvement in the residential lending book.

Major foreign banks Citibank ($8.3 billion and 0.8 per cent market share) and HSBC ($5.9 billion and 0.6 per cent market share) continue to have very little impact in offering a lending alternative in Australia, with the other foreign lenders Arab Bank, Bank of China, Bank of Cyprus, Laiki Bank and Rabobank holding very small portfolios in just the hundreds of millions.

Big Fours’ big gains

The ‘Big Four’ banks now hold $839 billion, or 83.6 per cent of all bank lending in Australia, increasing their market share stranglehold from 81.4 per cent a year earlier, with both Tier 2 Australian banks and foreign bank sectors suffering.

The Tier 2 Australian bank sector market share has fallen to 11.3 per cent from 13.0 per cent over the same period, with foreign banks dropping to 5.1 per cent from 5.6 per cent.

The Big Four market share gain trend shows no signs of abating in the short term and, if the gain continues, then the Big Four banks potentially could hold nine out of every 10 mortgage dollars lent by banks operating in Australia in the medium term.

The Australian Government has made some steps to reduce the Big Four dominance through the Australian Office of Financial Management (AOFM) investment in residential mortgage backed securities for some of the Tier 2 Australian banks, in an attempt to improve the lending liquidity and therefore mortgage competiveness.

The AOFM investments have benefited these smaller banks, but until Tier 2 Australian banks and foreign banks can access funding lines at a similar rate to the Big Four banks, or the demand for securitisation in Australia returns to levels before the global financial crisis, there will be no change in the control the Big Four banks have over the Australian residential lending landscape.