According to the latest analysis by Moody's Investors Service, the four major Australian lenders – ANZ, CBA, NAB, and Westpac – could lose their competitive edge to smaller lenders, lower rates and higher yields. Evolution of technologies affecting their profitability.
The Reserve Bank of Australia has already reduced the official exchange rate three times this year, causing a race to the bottom among home loan providers. The low interest rate environment is putting considerable pressure on the profitability of the big bank, said Moody's vice president and chief credit officer, Frank Mirenzi.
"We believe that it will be increasingly difficult for banks to maintain their competitive advantage, with reduced room for price differentiation and permanent competition, particularly in the digital domain, even if if economies of scale remain a major asset for big banks, "he said.
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Borrowers Changing Banks
A recent report by Deloitte Access Economics, commissioned by the Australian Banking Association (ABA), revealed that 2.8 million customers have switched to new banks or financial providers for their home loans, their credit cards and their transaction accounts during the past year.
According to Anna Bligh, CEO of ABA, this could indicate that competition between banks remains strong.
"Whether you're looking for a new mortgage, credit card or transaction account, competition for a customer's business is fiercer than ever," she said.
Bligh urged borrowers to consider seeking more competitive products if their current products did not suit them.
Recent figures from the industry show that the market share of the four largest companies is in steady decline. KPMG's analysis of the four big banks, which lasted all year, revealed that their mortgage market share had fallen to 81.2%. A separate analysis of Moody's showed that the share of approvals of new housing loans granted to the big banks had fallen from 86% ten years ago to 70% in June 2019.
Read also: Is the RBA likely to further reduce its rates?
Leveling the playing field
Mirenzi said that the impact of low interest rates was starting to become more pronounced for these banks, which relied more on domestic lending for revenue after a number of divestitures. overseas activities and wealth management operations.
"In addition, intense competition will make it more difficult for large banks to preserve their margins and increase their revenues through differentiated pricing strategies for loans and deposit rates," he said. he declared.
In addition, the evolution of technologies could further reduce the competitive advantages of these banks compared to smaller mortgage providers, especially online lenders, who incur minimal operational costs.
Open banking will also affect the functioning of the lending sector. In a report titled Your investment released earlier this year, Heidi Armstrong, Liberty's Consumer Advocate, said investors would increasingly seek finance out of the big four.
"We find that a growing number of borrowers are frustrated by the cumbersome, slow and slow approval process and policies adopted by the big banks," he said. she declared.
While borrowers look for personalized loan solutions, Armstrong said non-bank lenders could have "increased relevance" because they offer "useful solutions that span the entire spectrum of the loan."
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