GFC effect on Mortgage Market Share

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1 Thursday 1st October No Embargo GFC effect on Mortgage Market Share The Big Four Banks now hold 73.8% of outstanding mortgages in Australia, up from 56.8% two years ago in August 2007, for Australians the effective dawn of the Global Financial Crisis. Had the two mergers approved in the Westpac takeover of St George and the Commonwealth Bank takeover of Bankwest not proceeded, the market share of the big four would currently stand at 62.9%. Australia s major banks have shown remarkable stability over the last two years, said Tony Crossley, head of mortgages and insurance at CoreDatabrandmanagement. This stability is a significant factor in the mortgage lending growth of big four banks relative to their smaller competitors. Commonwealth Bank has a 25.3% of mortgage market share in Australia and Westpac 23.2%. This means that two banks hold almost half (48.5%) by value of all mortgages in Australia. The share of mortgages represented by ANZ and NAB has remained constant over this two year period at a little over 25%, although ANZ (12.5% up from 11.8% two years ago) are poised shortly to overtake NAB (12.8% down from 13.4% two years ago), which may be why NAB is now reacting through the purchase of Challenger, which is currently under ACCC consideration, said Crossley. Major findings Big four pre and post mergers The big four banks now hold 73.8% of mortgage market share in Australia, post the Westpac takeover of St George and the Commonwealth Bank takeover of Bankwest, August 2009 If the ACCC did not approve the two mergers, then combined the big four banks market share would be 62.9%, August 2009 Big four no more In allowing the St George and Bankwest takeovers, the ACCC has handed power to two banks, the Commonwealth Bank and Westpac, which combined hold 48.5% of all outstanding mortgages by value in Australia

2 In August 2007, as the GFC began, Commonwealth Bank and Westpac only controlled 31.6% of mortgages NAB did not focus on mortgage growth National Australia Bank share of the Australian mortgage industry is shrinking, falling to 12.8% in August 2009 from 13.2% in August 2008 and 13.4% in August 2007 The other three big banks all increased market share, either organically (ANZ) or takeover (CBA and WBC) NAB decision to purchase the Challenger broker channel is an attempt to quickly build market share again, with the decision currently pending from the ACCC Media comments contact: Tony Crossley: CoreData-brandmanagement Mobile: Phone: Big four market share impact Big four pre and post mergers The big four banks now hold 73.8% of mortgage market share in Australia, post the Westpac takeover of St George and the Commonwealth Bank takeover of Bankwest, August 2009 If the ACCC did not approve the two mergers, then combined the big four banks market share would be 62.9%, August 2009 Big four GFC market share impact In August 2007, when the GFC began, the big four banks had a combined market share of 56.8% In the next two years to August 2009, big four market share jumped to 73.8% due to three main reasons: Bank mergers; Flight to brand; and Mortgage book purchase Tier 2 Australian banks currently hold 10.8% of mortgages (pre GFC 20.2%), Non-bank lenders 10.6% (pre GFC 15.4%) and Foreign banks 4.8% (pre GFC 7.6%)

3 Foreign banks Non-bank lenders August 2009 Non-bank lenders August 2007 Tier 2 Australian Foreign banks Big four Big four Tier 2 Australian Aug 2007 Aug 2008 Aug 2009 Big four 56.8% 66.2% 73.8% Tier 2 Australian 20.2% 12.3% 10.8% Foreign banks 7.6% 8.1% 4.8% Non-bank lenders 15.4% 13.4% 10.6% Mortgage market controlled by two Big four no more In allowing the St George and Bankwest takeovers, the ACCC has handed power to two banks, the Commonwealth Bank and Westpac, which combined hold 48.5% of all outstanding mortgages by value in Australia In August 2007, as the GFC began, Commonwealth Bank and Westpac only controlled 31.6% of mortgages

4 Post GFC CBA and WBC Pre GFC CBA and WBC CBA and WBC All other lenders combined CBA and WBC All other lenders combined Aug 2007 Aug 2008 Aug 2009 CBA and WBC 31.6% 40.8% 48.5% All other lenders combined 68.4% 59.2% 51.5% Why National Australia Bank needs Challenger mortgage brokers NAB did not focus on mortgage growth National Australia Bank share of the Australian mortgage industry is shrinking, falling to 12.8% in August 2009 from 13.2% in August 2008 and 13.4% in August 2007 The other three big banks all increased market share, either organically (ANZ) or takeover (CBA and WBC) NAB decision to purchase the Challenger broker channel is an attempt to quickly build market share again, with the decision currently pending from the ACCC Bank Aug 2007 Aug 2008 Aug 2009 ANZ 11.8% 12.2% 12.5% Commonwealth (and BW) 18.3% 19.5% 25.3% National 13.4% 13.2% 12.8% Westpac (and St George) 13.3% 21.2% 23.2%

5 ING Direct flat ING Direct fifth biggest residential lender in Australia Foreign owned ING Direct is Australia s fifth biggest mortgage lender by value $35.1 billion in mortgages This represents 3.3% of mortgage market share in August 2009, down from 3.5% in August 2008 and flat from the 3.3% in August 2007 Tier 2 Australian banks can t compete Competition falters Tier 2 Australian banks require retail deposits as a source of funding for lending, as wholesale borrowing is more expensive due to lower credit ratings when compared to the big four banks Market share is just 10.8% in August 2009, down from 20.2% in August 2007 ends About the research The Australian Mortgage Report is published quarterly by CoreData, the market intelligence arm of financial consultancy company brandmanagement. Media comments contact: Tony Crossley: CoreData-brandmanagement Mobile:

6 Phone: DATA SOURCE: Data sourced from the Australian Prudential Regulatory Authority statistics, Reserve Bank of Australia and CoreData-brandmanagement research. About brandmanagement brandmanagement is an Australian-based market intelligence and research consultancy, specialising in the financial services industry. We provide market intelligence, and guidance on strategic positioning, methods for developing new business, advice on operational marketing and other consulting services. We pride ourselves in identifying market trends at the earliest opportunity and formulating research for clients to help them stay ahead of the pack and better meet day-to-day challenges to their business. The brandmanagement team has a depth of industry experience that reflects a rich understanding of the challenging environment facing firms operating in the financial services sector. We aim to deliver a breadth of market insight that general researchers are unable to capture. Our extensive operational experience allows us to assist clients in responding to research and the evolving market environment, quickly and efficiently.

7 About CoreData CoreData is the Sydney-based research arm of the market intelligence and consultancy firm, brandmanagement. brandmanagement is a private independently-owned company. The group provides financial services companies with research and insight. This facilitates firms in enhancing their strategic positioning, new business development, market research and market intelligence in Australia, China and the United Kingdom. Our associates contribute deep specific industry knowledge and primary research, bringing perspective to current market conditions and future developments. The group's primary aim in Australia is the formulation of nationwide consumer research with a specific focus on customer sentiment and individual buyer behaviour. CoreData has sister consumer research firms in Beijing, China - dragondata - and London, England - CoreData Research. The firm also has operations in Manila, Philippines. CoreData prides itself by identifying market trends at the earliest opportunity and formulating research for clients to help them stay ahead of the pack and better meet the day-to-day challenges to their business.

8 The CoreData team has a depth of experience that is reflected through having a rich understanding of the changing environment facing companies in different markets. We aim to deliver a breadth of market insight that general researchers are unable to capture. Our extensive operational experience allows us to assist clients in responding to research and the evolving market environment, quickly and efficiently. The CoreData team is a complimentary blend of experienced financial services, research, marketing and media professionals, who together combine their years of industry experience with primary research to bring perspective to existing market conditions and evolving trends. Disclaimer To ensure the privacy of the individuals conducting this research and to comply with privacy laws, no persons have been mentioned by name and no personal details are contained within this document. This document was compiled from primary research and other information at the time of writing. The information is believed to be accurate however no representation or warranty, express or implied, is made by brandmanagement as to its completeness, and it does not make any warranty to correct any information subsequently found to be inaccurate. This document does not constitute investment advice or a business recommendation. This document may contain the personal views, standards and opinions of the researchers and third party contributors. The inclusion of this material is not an endorsement by brandmanagement In all cases, people reading this material should attain appropriate professional advice in evaluating its accuracy, currency, completeness and relevance for their purposes. brandmanagement disclaims any direct or indirect liability or costs arising from any reliance on the information contained within this publication. The information within this paper remains the express property of brandmanagement. It may not be reproduced in any form without express permission.