Westpac's (ASX: WBC) CEO Gail Kelly has argued that the retail banking market is still competitive, despite Australia's big four banks writing nearly 90% of all new mortgages.
With credit growth sitting at around 3% and running on par with GDP rates (compared to around 11% or 12% growth pre-GFC), Kelly told The Australian Financial Review that "on mortgages it is a competitive sector… that's because it is such a low growth arena and has been for some period of time".
Her comments came in retaliation to HSBC Australia's chief, Tony Cripps, who last month said that "if you look at the retail space, the major banks hold about 90% of the mortgage market, so there's obviously not much competition there".
To expand on Cripps' point, the big banks made a number of acquisitions of smaller rivals during and after the global financial crisis, in order to achieve a greater market share. For instance, Commonwealth Bank (ASX: CBA) owns Bankwest, NAB (ASX: NAB) owns UBank and Westpac owns Bank of Melbourne and St George (to name a few). Last month, ASIC announced that it would be monitoring the multi-brand advertising strategies undertaken by the banks to ensure that customers were not being misled by these smaller subsidiaries. For example, St George had said that it would "beat any advertised home loan rate from the big banks", when, in fact, it was owned by Westpac.
Foolish takeaway
In terms of competition, concern has also been raised regarding Westpac's diminishing market share. Currently, Westpac maintains a higher mortgage rate than its competitors, raising alarms at both Credit Suisse and Nomura. Though it has lost 0.7% of its market share over the last 12 months, Kelly has stated that she is "comfortable" with its rate of home loan growth being slower than its competitors, as other analysts also suggest that it will benefit from higher margins on its interest.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
