Mergers Cut Into Home-loan Success

Regional banks and banks involved in mergers have been the poorest performers in the home-loan market in the past two years, according to the latest Reserve Bank figures.

The other notable finding from the figures was that Westpac Banking Corp's slide in home-loan market share continued in October, although a spokeswoman said yesterday it was expected that the bank's share would stabilise and then begin to rise in coming months.

Again, Commonwealth Bank and National Australia Bank - the country's biggest banks - were the star performers in the $140 billion owner-occupied home mortgage market.

Figures for October showed the Commonwealth Bank's share rose from 22.2 per cent to 22.7 per cent over the year. National Australia Bank recorded a gain from 17.4 per cent to 17.7 per cent. Both banks had improved share by 0.1 of a percentage point since September.

CBA has unilaterally cut almost 1.5 percentage points off its standard home loan rate since July last year, reducing its profit margin on home lending by about one-third in the process.

NAB's success has come mostly from a canny marketing campaign, its well-regarded service skills and its "packages" which combine home loans, transaction accounts and other products.

Neither of those large banks has made any substantial local acquisitions in many years.

Research on bank mergers, including a high-profile study from the US Federal Reserve, repeatedly shows that most banks lose market share when management and staff are preoccupied with implementing a merger.

Westpac appears to be a stark example of this phenomenon. In the past year, its home-loan market share - including that of its subsidiaries Challenge Bank and Bank of Melbourne - has fallen from 21.6 per cent to19.9 per cent.

"The last two or three months show a month-by-month improvement," spokeswoman Ms Megan Donald said. "You are going to see the RBA come out with some better figures [in future]."

St George Bank, which is merging with Advance Bank, has seen a slight decline in the past year. But looking back two years (which incorporates Advance's merger with BankSA), the drop is more dramatic.

Colonial State's decline highlights the predicament of regional banks that can't match the majors on rates or distribution.

ANZ's fall coincides with an aggressive home-loan marketing campaign and is likely to be a disappointment to new managing director Mr John McFarlane.

HOME LENDING MARKET SHARE
                                            Oct '95     Oct '96     Oct '97
CBA                                     21.7pc     22.2pc     22.7pc
Westpac/*
Challenge/BoM                     21.6pc     21.6pc     19.9pc
NAB                                     16.2pc     17.4pc     17.7pc
St George/Advance             13.5pc     13.1pc     13.0pc
ANZ                                      12.3pc     11.8pc     11.7pc
Colonial                                   5.2pc       4.8pc       4.5pc
*Westpac figures take account of home loan securitisation program.
Source: Reserve Bank