RBA sees mortgage competition constraining margins of big banks
November 24, 2009
Reserve Bank of Australia Assistant Governor Guy Debelle is confident that competitive tension in the mortgage sector will be enough to ensure the margins of the major players do not expand significantly, with “signs of life” in the securitisation market presenting renewed opportunity to non-bank lenders.
Concerns have been raised that the ‘big four’ (ANZ, Westpac, CBA and NAB) may look to raise rates above and beyond official movements of the RBA, but Mr Debelle contends that this is unlikely.
“I believe there are good reasons to think that competitive pressures will continue to restrain the ability for any margin-widening on the part of the larger banks,” he told a conference.
Competition in the sector was slashed last year with the global financial crisis putting pressure on non-bank lenders and the big banks scooping up major regional players like St George and BankWest. But Mr Debelle is confident that any margin increases by the banks will see new competitors enter the marketplace as credit markets improve. At the peak of the crisis over 90 per cent of new home loans were being written by the major banks, this has now moderated to closer to eighty per cent.
“The housing loan market remains contestable, even if there are not as many competitors currently,” he advised. “By that I mean that any excessive widening in margins will attract new competitors back into the market. The return of securitisation, even if not to its former state, will clearly assist this.”
Mr Debelle noted that lending margins on variable rate home loans have decreased recently but this has been more than offset by a widening in business and personal margins.
He added that, despite the crisis, housing credit had been flowing quite freely.
“It is worth stating that there has not been any material restriction in the supply of housing credit throughout the financial turmoil. Growth has slowed, but to an annual rate of 8 per cent, which in some countries is regarded as high!” he commented.
Securitisation making a comeback?
The value of Australian RMBS outstanding has fallen more than 40 per cent below its peak in June 2007 but there are signs that the securitisation market - which helped non-bank lenders to compete with the majors - is making a comeback.
“This decline in the stock outstanding of RMBS should be starting to create some holes in investors’ portfolios,” Mr Debelle said. “Hence, I think there are good reasons to believe that the signs of life that we have seen in the market in recent months presage more activity to come in the near future.”
“So securitisation may be coming back as a viable form of financing. However, a number of the larger non-bank originators are no longer around any more.”