May 30, 2024

Commonwealth Bank ceding ground in battle for home loans

Jefferies analyst Matthew Wilson said there would come a “line in the sand”.

“Scale matters and no one likes to shrink,” Mr Wilson said.

CBA has lost 53 basis points of market share in the past 12 months alone and, if its share was to go under 25 per cent of home loans in the coming months, it would be the first time since 2011 that this had occurred.

The bank has largely stepped back from the mortgage wars that cut profit margins – it does not offer cash back to refinancing borrowers, while ANZ and Westpac’s St George brand still do; nor does it have the sharpest pricing in the market of the big four banks.

But Mr Wilson said the oligopolies “work best with stable market share”.

“Westpac is seeking to stabilise and regain lost share,” he said. “Contemporaneous competition on both sides of the balance sheet portends downside [margin] risk.”

Westpac lifted its market share four basis points to 21.4 per cent in November, its highest point so far in 2023. ANZ was flat at 13.45 per cent, though National Australia Bank ceded two basis points to 14.64 per cent of home loans.

Macquarie grew three basis points in November to 5.27 per cent, a record high.

The rush to pick up new customers refinancing their mortgage as they fell off lower-cost fixed rate loans onto more expensive variable loans did immense damage to the profitability of major banks last year.

Profit margins slid drastically, even as the Reserve Bank pushed on with an aggressive tightening cycle and raised official interest rates from 0.1 per cent to 4.35 per cent since May 2022.

The damage was most acute at ANZ, where it added $11 billion in net new home loans in the six months to September 30, but earnings from the retail bank still crashed 17.3 per cent lower. ANZ’s retail division’s lending margins fell from 2.39 per cent to 2.06 per cent in the period, but the bank’s chief executive, Shayne Elliott, said last month there was more ground to claim for the smallest of the major lenders.

Mr Comyn said the fall at ANZ was “the largest margin erosion in the history of Australian banks”, in November. “We’re not immune to that, and obviously, we’ve made some different choices in terms of pricing and intend to remain disciplined and thinking long-term about that,” Mr Comyn told The Australian Financial Review’s Chanticleer column at the time.

CBA declined to comment and said it would provide an update on its home loan strategy at its half-year results on February 14.

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