ANZ mortgage win at CBA's expense
2 December 2016
http://www.australianbankingfinance.com/banking/anz-mortgage-win-at-cba-s-expense/
Australia New Zealand Banking Group is winning market share in the home loans market even as Commonwealth Bank of Australia loses volume, according to the latest credit statistics released by the government statistician.
ANZ has consistently won housing market share from 2012 to early 2016 before abruptly seeing its market share fall to a low of 20 per cent of system in July.
UBS analyst Jonathan Mott believes it was this drop that prompted ANZ chief executive, Shayne Elliott to say: "Given strong house price growth and stagnation in household income we have adopted a more cautious approach to growth".
However, the October credit statistics released yesterday showed that ANZ bounced back to 109 per cent of system - from the 20 per cent low - despite management taking a "cautious approach".
“We see this as disappointing and an indication that underwriting standards may not have been tightened as ANZ suggested.
Rather we believe ANZ's sharp fall in lending around midyear was more likely a reflection of regulatory restrictions on foreign borrowers and timing of the adoption of Household Expenditure Measure affordability metrics," said Mott.
Conversely, CBA had been losing mortgage market share prior to its aggressive discounting strategy, the analyst added in a note. CBA's credit growth versus system growth fell from 131 per cent to 87 per cent for the same period - July to October
While this led to a pick-up in volumes, discounting had a significant negative impact on home loan Net Interest Margins. Interim results for Australia’s biggest lender revealed a 10 per cent drop in underlying NIM in June.
“Given concerns around the NIM outlook, CBA removed its most aggressive price offerings during August," Mott said. “This led to an immediate slowdown in volumes, with CBA's mortgage growth reverting to below system.”
Bank rally was justified
The UBS analyst argued that these figures are consistent with his concerns over CBA's ability to sell mortgages through its proprietary network.
“Until this is addressed, price appears to be CBA's only tool to stem mortgage market share losses," argued Mott.
In terms of housing credit growth numbers National Australia Bank and Westpac Banking Group were basically stable over the period. NAB rose slightly from 99 per cent to 95 per cent of system and Westpac moved from to 113 per cent to 112 per cent .
Housing credit growth appears to have peaked for the cycle with Mott forecasting mortgage 'fundings' for the big four to hit a record $310 billion before slowing in the following two years. This implies housing credit growth of 5.0 per cent in 2017 and 4.0 per cent in 2018, down from 6.6 per cent in 2016.
The Aussie banks have rallied sharply over the last month following the US elections and the prudential regulator's speech reduced the likelihood of imminent capital raisings.
"While we believe much of this rally was justified, the banks are now fully priced given the very subdued earnings outlook and ongoing requirement for capital accumulation," said Mott.
"While the banks will have time to reach "Unquestionably strong" capital ratios (which are yet to be defined by APRA) this 'slow-burn' approach makes repricing the book challenging in the current environment.
"This implies higher capital requirements are now more likely to be absorbed by shareholders than passed on to customers."