Butterfly Effect

The Australian banking and regulatory system is the envy of the Western world, some say, yet pundits argue that the big four banks are anti-competitive due to their market share levels.

The ACCC had little choice during the global crisis to allow two of the big banks to grow through acquisition, as Westpac consumed St. George and Commonwealth Bank swallowed Bankwest, but few actually fully understand their control.

Half of all retail deposits (48.9%) are now held by either the Commonwealth Bank (28.2%) or Westpac (20.7%), with a very similar story emerging on the lending side.

Commonwealth Bank, with 25.3% , is the biggest residential lender in Australia, with Westpac close behind at 23.2%.

 Combined the ‘big two’ hold 48.5% of mortgage market share.

When the GFC first began being understood in late-2007, Commonwealth Bank held 25.1% of retail deposits and Westpac 12.1%, for a total of 37.2%.

The retail deposit GFC effect on the ‘big two’ is therefore a market share increase of close to 12 percentage points, and with the retail deposit market pushing $500 billion, the percentage increase above system for the period is around $58 billion.

The GFC effect on the mortgage market though is even more profound, but more understood.

In mid-2007, Commonwealth Bank held 18.3% mortgage market share with Westpac 13.3%, or around 31.6% when combined, representing a 14 percentage point market share gain in the last two years.

The mortgage market recently passed a trillion dollars outstanding, therefore the big two had a monetary gain above system somewhere in the range of $140 billion.

With such high market share levels, there is little left for the remaining sectors which have all been decimated due to acquisitions, mortgage book purchases and flight to brand.

The struggling Tier 2 Australian bank sector now accounts for just 10.2% of retail deposits and 10.8% of mortgages, compared to around a 20% pre GFC.

Foreign banks have 5.6% of deposits and 4.8% of mortgages, around half the 10% in mid-2007.

Non-bank mortgage lenders now account for 10.6% of the market, down from 15.4% for the same period, due to the mutual portion of this sector remaining stable.

The loss of competition in the foreseeable medium term, although unfortunate, was the necessary evil in maintaining financial stability in the Australian banking system.

It’s much better to have fewer options than lessor options.

Market share figures were sourced from the CoreData Australian Cash Report and the CoreData Australian Mortgage Report.