The battle for your mortgage home loan business to intensify
12/01/2012 
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The way some people see it, BankWest head of mortgages John Rolfe holds the key to profitability in the nation’s $600 billion mortgage market.
The theory goes like this. BankWest’s aggressive parent HBOS, having already caused chaos in the cosy banking industry by hiking deposit rates, is ready to move to the asset side of the business.
Leading bank analyst Brian Johnson of JP Morgan notes in a recent report that HBOS is quite happy competing at a skinny 0.7 per cent return on assets.
Major Australian banks, on the other hand, prefer living off the fat of the land, earning a vastly more respectable ROA of 1.1 per cent.
“Ultimately, this must raise the threat of increased competition, driving down the unsustainably high lending spreads of the Australian banking sector, particularly in housing,” Mr Johnson said.
“HBOS has already destroyed the incremental profitability of the Australian deposit market. Housing could be the next target.”
Ask Mr Rolfe about an imminent market-share grab in mortgages, and he will at least acknowledge an appetite for more business.
But he notes also that his parent company is a Scottish bank and Scottish bankers do not have a reputation for giving away their profit margins.
“It’s the big Australian banks that are out there pricing to win business,” Mr Rolfe says.
“We are not in the game of offering extraordinary discounts for growth, like 0.9 to 1 per cent off the standard variable rate. It’s not the way we operate.”
Still, BankWest is doing something right.
Off an admittedly low base, it was the fastest growing retail bank in 2006 in household deposits and credit cards, as well as in Mr Rolfe’s business of mortgages.
In its home base of Western Australia, BankWest has a dominant 22 per cent of the mortgage market.
But the expansion opportunity clearly lies along the eastern seaboard, where BankWest relies on a strong relationship with mortgage brokers to neutralise its lack of a strong branch network.
National market share in mortgages is about 3.2 per cent, but its share of new business, according to Mr Rolfe, is 6 per cent to 7 per cent.
About 65 per cent of its new loans last year originated from mortgage brokers, enabling the bank to report 28 per cent growth in lending.
As far as Mr Rolfe is concerned, the hyper-competition theory advanced by Mr Johnson has happened already.
The incumbent banks’ higher return on assets is explained by their large back book of old loans written at more attractive rates: for the bank, that is.
“Competition? It’s already here,” Mr Rolfe says. “But we’re happy about that. It’s great for the customer.”
Source: The Australian
Rick Adlam has been helping clients with home loan finance since 1985 when he was home consultant with AV Jennings. Rick started Equity Home Loans in 1996 to help homeowners become property investors. Rick currently consults in the development of Mr Mortgage for mortgage brokers and HomeMate for new home buyers.
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