Market share war worries investors
(2 March 2010 – Australia) The investment community has become concerned about how the price wars Australia’s banks are engaging in will affect margins, and whether it could result in earnings downgrades.
The Australian newspaper has reported that influential fund managers and analysts are predicting that the competition between the majors is set to intensify.
This in turn could compress earnings as each bank fights to defend its market share, while snatching customers from the competition.
NAB launched the original assault that began the market share war by offering to pay exit fees incurred by Westpac and CBA customers.
The two specially targeted banks, the largest by market capitalisation with the highest residential lending levels, retaliated by increasing their home loan and business lending discounts.
CBA also revealed it had relaxed some of its lending criteria, in a bid to resuscitate its slow mortgage growth over the past 18 months.
The intense competition has been welcomed by the government as a sign of increased competition.
However, there is growing concern that if the current competition intensifies then earnings and profit margins could be crimped. The banks are one of the most profitable sectors of the Australian market, with the top four on track to earn at least $22 billion this year.
White Funds Management managing director Angus Gluskie said investors were concerned the banks could expand the discounting outside of retail and business banking.
'We would be concerned if the competition was to result in significant margin compression,' he said.
'There is potential for that to occur. The competition that we have seen so far has been largely vocal jockeying for the market's attention.
'At this stage we don't think it's at the level that there's a financial detriment. But we do have our eye on it.'
This in turn could compress earnings as each bank fights to defend its market share, while snatching customers from the competition.
NAB launched the original assault that began the market share war by offering to pay exit fees incurred by Westpac and CBA customers.
The two specially targeted banks, the largest by market capitalisation with the highest residential lending levels, retaliated by increasing their home loan and business lending discounts.
CBA also revealed it had relaxed some of its lending criteria, in a bid to resuscitate its slow mortgage growth over the past 18 months.
The intense competition has been welcomed by the government as a sign of increased competition.
However, there is growing concern that if the current competition intensifies then earnings and profit margins could be crimped. The banks are one of the most profitable sectors of the Australian market, with the top four on track to earn at least $22 billion this year.
White Funds Management managing director Angus Gluskie said investors were concerned the banks could expand the discounting outside of retail and business banking.
'We would be concerned if the competition was to result in significant margin compression,' he said.
'There is potential for that to occur. The competition that we have seen so far has been largely vocal jockeying for the market's attention.
'At this stage we don't think it's at the level that there's a financial detriment. But we do have our eye on it.'
Subscribe