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Australian Mortgage Report

Quarter 1 2010

‘Year in Review’

A quarterly detailed analysis of the Australian mortgage industry

Australian Mortgage Report: Quarter 1 2010 – Brief CoreData bm


About The Study
The Australian mortgage industry continues to undergo unparalleled change, with
much of the impact caused by the confusion continuing to unfold from the global
financial crisis.
The lack of economically viable wholesale funding and ‘difficult’ securitisation
markets has caused, and continues to do so, many lenders such as non-banks to
cease lending altogether, with many tier 2 Australian banks also struggling to
compete.
The Australian Mortgage Report has been developed to unlock the confusion
surrounding residential lending market share in Australia, with quantitative analysis
extending back five years from December 2009.

What’s in the report?


The Australian Mortgage Report, which is released quarterly, compiles, analyses
and comments on the developments, trends and market activity with a different
mortgage theme per quarter.
The aim is to provide benchmark analysis on the Australian mortgage industry,
along with information in line with the quarterly theme.
The theme for Quarter 1 2010 is ‘Year in Review’, as CoreData-
brandmanagement highlights mortgage market share changes during 2009.

Pending any major market changes, the quarterly themes for 2010 will remain;
 Quarter one; Year in Review; released mid-February
 Quarter two; Mortgage products; released mid-May
 Quarter three; Customer acquisition; released mid-August
 Quarter four: Sales channels / mortgage brokers; released mid-November

Australian Mortgage Report: Quarter 1 2010 – Brief CoreData bm


Report Extracts Below:

Executive Summary

1.1 St George and Bankwest perform strongly


The St George and Bankwest brands were the surprise success stories during
2009, when many considered there would be a customer exodus post the
respective Westpac and Commonwealth Bank takeovers.
The St George mortgage book increased 14.7% for the year ending December
2009, with Bankwest up 29.4%.

1.2 Tier 2 banks lending continues to struggle


During 2009 the Tier 2 banking sector continued to lose mortgage market share
to the big four banks, with restricted lending volumes due to lack of funding.
The big four banks can access cheaper lines of wholesale funding compared to
Tier 2 banks, due to higher credit ratings.

1.3 ‘Big two’ now have 50% market share

The ‘big two’, Commonwealth Bank and Westpac by the end of 2009 hold 50.0%
of all outstanding mortgages in Australia, with market share continuing to
increase each quarter.
ANZ and National Australia Bank market share was unchanged for the year,
with the biggest losers the non-bank lenders whose share fell to 4.8% from
8.5%.

1.4 Commonwealth Bank hits $280 billion

The 25.9% market share ranks the Commonwealth Bank as the largest
mortgage lender in Australia, with a 21.6% book jump to $280 billion for year
ending December 2009.

1.5 Westpac reaches $260 billion


Westpac attracted very negative media attention in December when the bank
boosted the standard mortgage variable by 45 points, after the official cash rate
increase of 25 points. With a mortgage book of $260 billion and mortgage
market share of 24.1%, Westpac can potentially afford to have weaker customer
acquisition in the short term, as the bank increases margins on the book grown
during the Global Financial Crisis.

Australian Mortgage Report: Quarter 1 2010 – Brief CoreData bm


1.6 National has renewed mortgage focus
At the end of 2009 National gave a clear indication of a renewed focus on the
mortgage market with the Challenger broker network purchase, along with the
December 2009 decision to increase mortgage rates inline with official cash.
A 4.9% book gain was recorded for the December quarter, increasing the annual
growth rate to an above system 9.2% for the year to December 2009.

1.7 ING Direct funding struggle impacts mortgage book

The bank’s retail deposits increased just $1.4 billion to $17.8 billion for the year
to December 2009, which had a direct impact on the mortgage book which could
only increase 3.5% to $35 billion for the period.
A more cautious approach to residential lending has prevented the bank from
growing the mortgage book by any more than 1.5% for any quarter during 2009,
with the weakest growth of 0.4% recorded for the September quarter.

1.8 The Suncorp struggle continues

If the Suncorp snail-paced mortgage growth continues at the current level of less
than one per cent per annum, then Tier 2 bank competitors Bendigo and
Adelaide Bank or Bank of Queensland may overtake Suncorp as Australia’s
sixth biggest residential lender.

1.9 Bank of Queensland shining light


Bank of Queensland continues to impress with the ability to grow mortgage
market share above system, when all other Tier 2 banking rivals struggle.

1.10 Macquarie Bank catalyst for run-off example


With no new lending for several years, the Macquarie Bank mortgage book
continues to fall by a consistent percentage each quarter, and remains the
lending indicator of how quickly a book shrinks in run-off.
This indicates any mortgage books in run-off decrease by between 23% and
25% each year.

1.11 GFC has no impact on mutuals


The Global Financial Crisis had virtually no impact on the mutual sector which
continues to grow at around 10% annually.
As a combined group, mutuals would be the fifth biggest mortgage lender in
Australia, behind the big four banks and well ahead of current fifth placed holder
ING Direct.

Australian Mortgage Report: Quarter 1 2010 – Brief CoreData bm


The success of the subsidiary brand

St George mortgage breakdown


The St George mortgage book increased by $11 billion to $85.5 billion during
2009, an extremely strong result considering more than half of all mortgages
under the brand are domiciled in New South Wales.

The St George mortgage book increased 14.7% for the year ending December
2009.

16%

12%

8%

St. George
4%
Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Sour ce: APRA

Bankwest mortgage book growth peaked at 9.4% in the December quarter, with
a low of 4.2% for the June quarter.

10.0%
Bankw est

8.0%

6.0%

4.0%

2.0%
Mar-09

Jun-09

Dec-09
Sep-09

Source: APRA

Australian Mortgage Report: Quarter 1 2010 – Brief CoreData bm


Sector Market Share Analysis

The stranglehold of the big four banks on the Australian mortgage market has
been well documented, but a new milestone has now been reached.
The ‘big two’, Commonwealth Bank and Westpac by the end of 2009 hold 50.0%
of all outstanding mortgages in Australia, with market share continuing to
increase each quarter.
Non-bank
lenders December 2009
Foreign Mutuals
banks

Tier 2
Australian

CBA / WBC

ANZ / NAB

Mortgage Market Ranking

Analysis on the 18 banks operating in Australia, including;


 Short term analysis – quarter by quarter
 Long term analysis – year on year
 Market share analysis – change over six years

Australian Mortgage Report: Quarter 1 2010 – Brief CoreData bm


Bank Analysis (NAB Example)

At a glance
Significant mortgage focus: Renewed mortgage acquisition focus
Mortgage ranking by value: 3
Mortgage market share: 13.2%
Mortgage book size: $142 billion
Year to December 2009: 9.2% increase
Quarter to December 2009: 4.9% increase

Short term analysis – quarter on quarter change

The RHG $440 million loan purchase pushed the December quarter mortgage
book increase to 4.9%; the March quarter was weakest at just 0.7%.

5.0%
National
4.0%

3.0%

2.0%

1.0%

0.0%
Mar-09

Jun-09

Dec-09
Sep-09

Source: APRA

Australian Mortgage Report: Quarter 1 2010 – Brief CoreData bm


Mortgage market share analysis
National mortgage growth was maintained below system until mid 2009, causing
market share to fall from a peak of 14.8% in 2003 down to 12.9% in June 2009,
with market share increasing to 13.2% by the end of 2009.

15.0%

14.5%

14.0%

13.5%

13.0%
National
12.5%
Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Sour ce: APRA / RBA

Cost
The Australian Mortgage Report can be purchased individually, or as an annual subscription,
which can include a client ‘in house’ presentation of the major findings.
For further details contact the Brand Management office on (02) 9376 9600.

Australian Mortgage Report: Quarter 1 2010 – Brief CoreData bm


Background
CoreData is a specialist financial services research and strategy consultancy based out of Sydney,
Australia.

The firm is part of the brandmanagement group, which has operations in Australia, the United Kingdom,
China and the Philippines.

With a primary focus on financial services CoreData provides clients with both bespoke and syndicated
research services through a variety of data collection strategies and methodologies.

Clients benefit from a dual offering of business-to-business and business-to-consumer research and
consulting services.

The group provides clients with market intelligence, guidance on strategic positioning, methods for
developing new business, advice on operational marketing and other consulting services.

CoreData Research prides itself in identifying market trends at the earliest opportunity and formulating
insightful quantifiable research that clients can use to help them stay ahead of the market and better meet
the day-to-day challenges facing their businesses.

Our focus is on bringing deep market knowledge to research and strategy development.

The group’s research is not just about information and data but at providing insight so clients can develop
strategies that work.

The team is a complimentary blend of experienced financial services, research, marketing and media
professionals, who together combine their years of industry experience with primary research to bring
perspective to existing market conditions and evolving trends.

CoreData-brandmanagement has a number of syndicated benchmark proprietary indexes across a broad


range of business areas within the financial services industry.

Australian Mortgage Report: Quarter 1 2010 – Brief CoreData bm


CoreData-brandmanagement has an extensive proprietary nationwide database of 80,000 Australians and
is used to recruit consumer participant respondents for studies.

Australian Mortgage Report: Quarter 1 2010 – Brief CoreData bm


Disclaimer

To ensure the privacy of the individuals conducting this research and to comply with privacy laws, no persons have been mentioned by
name and no personal details are contained within this document.

This document was compiled from primary research and other information at the time of writing.

The information is believed to be accurate however no representation or warranty, express or implied, is made by brandmanagement as to
its completeness, and it does not make any warranty to correct any information subsequently found to be inaccurate.

This document does not constitute investment advice or a business recommendation.

This document may contain the personal views, standards and opinions of the researchers and third party contributors.

The inclusion of this material is not an endorsement by brandmanagement

In all cases, people reading this material should attain appropriate professional advice in evaluating its accuracy, currency, completeness
and relevance for their purposes.

Brandmanagement disclaims any direct or indirect liability or costs arising from any reliance on the information contained within this
publication.

The information within this paper remains the express property of brandmanagement. It may not be reproduced in any form without express
permission.

Australian Mortgage Report: Quarter 1 2010 – Brief CoreData bm