Big Banks Shore Up Their Turf

The major banks are once again dominating the home loan market. It would be fair to say that most home loans sold by the big banks are packaged products. This is where the big banks have the advantage, as they have the economies of scale needed to incorporate competitive products – mortgage, transaction account and credit cards – into a convenient, attractive package.

Prior to August 2007, second tier banks and mutuals were eating away at the majors' market share on the back of the property boom and easier access to funding channels. However, the global funding crisis changed all that and we saw many customers swing back to the ‘safety’ of the big banks.

Several factors contributed to this. The most publicised, of course, being customers’ flights to safety, the reasoning being that bigger was perceived to be stronger and less vulnerable to financial evaporation. The collapse of several overseas banks seemed to reinforce this belief, making people wary of banking with smaller institutions. Suddenly, Australia’s big banks were given a new-found ability to obtain funding through retail deposits when offshore funding costs were increasing and the residential mortgage-backed securities market had frozen up.

Although retail deposits alone were not going to be sufficient to cover the lending book of the majors, it allowed them to attract significant flow of business by offering competitive interest rates. The non-bank lenders, on the other hand, were somewhat blown out of the water and were unable to compete on the same scale.

Of course the size of the majors can not be discounted when it comes to consumers’ choice of institution. With large networks of branches offering a wide variety of financial products, the major banks offer convenience over some of the smaller institutions.

Package Home Loans ...