The market is sitting up and taking
notice of Macquarie’s bold plans to become a ‘fifth pillar’ in the
Australian banking industry, adding a growing residential mortgage lending
offering to its established investment banking suite. Is this just
‘testing the water’ for other lending products, or is Australia’s largest
investment bank actually capable of achieving this?
East & Partners Deposit Funding and Debt Index (DFDI) closely tracks
intricate changes in Australia’s Authorised Deposit Taking Institutions (ADI’s)
lending and deposit taking ratios, in addition to market share and volume
characteristics. A surge in mortgage lending over the last 18 months has
been reflected in falling DFDI ratios for the banks with greatest exposure
to this sector as they put their cash reserves to work.
Residential lending heavy weights include the Big Four, Suncorp, BOQ,
Bendigo Adelaide and AMP. Their DFDI ratios have all tracked relatively
smoothly in line with the trend since 2012, yet a noticeable pace setter
and interesting case study in adaptability to changing market conditions
is shown to be Macquarie.
A significant change in Macquarie’s DFDI ratio is emerging as the bank
deploys its considerable cash balances in the form of an intermediated
assault on residential mortgage markets. Immediately following the GFC in
2008 Macquarie effectively withdrew from property lending, resulting in
its retail DFDI ratio rising to 1.20. A higher ratio indicates more
deposits relative to lending balances.
Since the beginning of 2013 however Macquarie has made an astounding
comeback, achieving property lending growth that will see the bank soon
bracketed with larger regional lenders such as BOQ and Bendigo Adelaide
instead of foreign owned banks with smaller residential property loan
books such as HSBC and Citigroup.
Macquarie’s retail DFDI ratio decreased
60 percent since 2011 to 0.48 as the bank aggressively drives into the
$1.3 trillion mortgage market.
Macquarie has achieved strong mortgage lending growth by expanding its
stake in Mark Bouris’ Yellow Brick Road and Homeloans, along with a
unique Qantas Frequent Flyer linked home loan package that has very
effectively differentiated the bank from its well established Big Four
Unlike the Big Four who increasingly
rely on deposit funding as their principal revenue stream, the core
business underpinning competitive mortgage lending propositions from AMP
and Macquarie is wealth management.
AMP has successfully cross sold
mortgages through its extensive financial planning network, and it appears
Macquarie is now harnessing the full potential of its mortgage lending
acquisitions and ‘Big Four Alternative’ status to diversify from its
investment banking foundation.
The reason why more home loans are issued by the Big Four is their strong
capital base and ability to provide more attractive rates. The larger
scale of the Big Four, who account for over three quarters of all fixed
rate loans, give them a significant advantage in sourcing funding and out
pricing smaller lenders.
Borrowers in Australia have not had an
exceptional array of competitive options to choose from until recently,
with the regionals and Macquarie in particular shaking the mortgage
lending market up. This will pose a unique challenge to CBA, NAB, ANZ and
Westpac as they fiercely defend their dominant mortgage lending positions.
Low interest rates coupled with improved consumer sentiment have resulted
in a rapid upshift in residential lending demand not only in Australia but
also from abroad. Nearly half of all NSW mortgages in August were taken
out by investors, with a similar increase in commercial property lending
expected to be seen in early 2014.
Senior Markets Analyst Martin Smith comments “Credit growth in areas other
than property is still taking time to develop, resulting in a strategic
capital allocation swing to residential property lending”
“Macquarie has recorded impressive growth in this category however it is
from a low market share base and remains to be seen if it can be
Smith said the sharp decline in Macquarie’s retail DFDI ratio indicates a
fundamental shift in the way the bank allocates it capital.
this has on other banks in terms of their reaction to Macquarie’s unique
competitive positioning of residential property loans will play out
interestingly within the next DFDI report released next month,' he said.