A Poor Second

Consumer banking competition in Australia continues to diminish at an accelerated pace, as the big four banks continue to increase residential lending and retail deposit market share.

Killing competition is the inability for Tier 2 Australian banks and foreign banks to attract sufficient levels of retail deposits, a major source of funding for smaller bank lending books.

In mortgages, the big four hold three quarters (74.1 per cent) of all mortgages, up from 65.4 per cent a year earlier and 56.9 per cent in 2007, the CoreData Australian Mortgage Report reveals.

Meanwhile in deposits, 72.4 per cent of total retail assets are held by the big four, jumping from 68.1 per cent a year earlier and 58.6 per cent in 2007, the CoreData Australian Cash Report shows.

Both reports were released this week.

Tier 2 Australian banks have a heavy reliance on retail deposits as wholesale funding is more expensive, due to lower credit ratings from agencies such as Standard and Poor’s and Moody’s.

For example, Suncorp could only grow retail deposits by 8 per cent or $987 million to $13.3 billion during financial year 2009, a period when system was above 18 per cent and the big four increased retail deposit books by between 16 and 25 per cent, from deposit books more than three times that of Suncorp.

This leaves Suncorp short of lending funds at a competitive rate, with the flow on impact just a 4 per cent increase in mortgage lending to $28.3 billion during financial year 2009.

It’s not just the Tier 2 Australian banks suffering, with Dutch-owned ING Direct struggling with customer acquisition despite continuing large scale marketing campaigns.

ING Direct mortgage book growth of $1.8 billion to $35.1 billion, or 5 per cent, during financial year 2009 was well below the 19 per cent for the corresponding period a year before and the 22 per cent for financial year 2007.

Impacting ING Direct mortgage growth has been the abrupt halt in attracting new retail deposits, with the banks retail deposit book actually falling $502 million, or 3 per cent, to $16.3 billion during financial year 2009.

Highlighting the medium term cash acquisition problems, ING Direct for the three years to June 2009 has increased retail deposits by just $622 million, or 4 per cent, one of the fundamental reasons the banks mortgage book growth is stalling.