The emerging trend of low debt, bigger cash holdings and a significantly more conservative approach to investment may signal a fundamental change in the way banks drive their profits, according to CoreData principal Andrew Inwood.
Inwood’s comments followed the release of the Australian Mortgage Report for the second quarter of 2011, which found there was a clear slowing in the growth of the Australian mortgage sector.
He said the mortgage business had been a powerhouse for bank profits for the past decade, but some signs indicate that could change soon.
“There is considerable evidence to support the fact that the past 10 years of house price growth and lending growth have been an aberration and that mortgage debt growth will be in single figures for some time to come,” Inwood said.
However, he added that considering the industry was rapidly closing in on being a $1.2 trillion debt industry, the 6.8 per cent current annual growth rate was still high.
Nevertheless, the Commonwealth Bank’s (CBA) mortgage acquisition business had significantly slowed down, with its book increasing only 0.9 per cent in the first three months of 2011 – a direct result of the bank’s decision to lift rates by 45 points, well above the official cash increase of 0.25 per cent.
Inwood noted the CBA was clearly running a ‘two-brand strategy’, slowing down growth in its main brand while using the BankWest brand to grow the bottom end of its loan book.
“BankWest in fact continued to perform strongly and increased its mortgage book by $1.1 billion, or 2.6 per cent, to $43 billion in the first three months of 2011,” he said.
According to the report, all big four banks are performing well, with the National Australia Bank’s ‘Break Up’ campaign paying off. The bank achieved double mortgage lending system growth of 11.8 per cent in the year to March 2011.
The ING Direct retail banking brand, however, continues to struggle in Australia, as the bank is unable to attract sufficient retail deposits to fund mortgage lending, the report stated.
