The share price of Westpac Banking Corp (ASX: WBC) is leading the big banks higher as it announced plans to aggressively chase new borrowers.
The stock jumped 1% to $28.16 in the last hour of trade as Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) trailed with a 0.8% and 0.6% gain, while Commonwealth Bank of Australia (ASX: CBA) was flat.
Westpac is slashing rates by as much as 110 basis points (bps) to attract new customers even as it slugged higher rates on its existing borrowers. It's the first of the big banks to announce such a promotional strategy for spring (a traditionally busy time for the housing market), according to the Australian Financial Review.
It doesn't pay to be loyal to your bank but shareholders like the strategy as it's perhaps the best way to have your cake and eat it.
Banks are facing increased funding costs due to rising global bond yields and have to protect their margins by lifting mortgage rates.
The standard variable rate for Westpac's customers will increase by 14 bps from today, but it isn't alone as ANZ and CBA will also increase their standard rates by 16 bps and 15 bps, respectively.
However, this could provide a way for smaller rivals to win market share by offering a competitive loan and Westpac's move to offer big discounts off its standard rates will help stem some of the loss.
I don't believe Westpac is as concerned about losing (or winning) customers from the other big three banks than it is about smaller rivals, particularly non-bank lenders.
The big four have an 80% market share of home loans but their dominance is slowly being chipped away by newer lenders.
I also wonder if Westpac's aggressive discount package is in response to NAB's decision not to follow its peers by lifting its standard variable rate.
What's noteworthy is that Westpac is offering the best discounts for first time investors as this group qualifies for a 110 bps cut in the headline rate of 4.18% for the first five years, before the discount narrows to 80 bps, according to the AFR. This means new housing investors can borrow on rates as low as 3.08%!
The banks have been favouring owner-occupiers over investors recently, so it's interesting to see if this marks a change in strategy.
If Westpac and its peers can show that it can manage their margin squeeze and hold, if not grow, their market share, their stocks could re-rate.
Their only big challenge left is to navigate the housing market slowdown.
All the big banks, excluding CBA, will hand in their profit results and declare their dividends in November. It is probably a little too early to call it just yet, but the upcoming reporting season could be a turning point for the embattled sector that has been lagging the S&P/ASX 200 (Index:^AXJO) (ASX:XJO).
