The bank has seen its home lending portfolio dwindle for three consecutive months – which hasn't happened in over two decades
Commonwealth Bank is feeling the heat as it faces consecutive months of market share losses in the highly competitive home loan market.
The bank has been offering lower interest rates to attract new customers, according to a report by The Australian. But this strategy seems to have backfired, as recent statistics from the Australian Prudential Regulation Authority reveal a shrinking home lending portfolio for three consecutive months – which hasn’t happened for the bank since at least 2002.
According to an analysis by Jefferies, Commonwealth Bank lost 11 basis points in market share in September alone. This loss becomes even more significant when considering that the bank has lost a total of 45 basis points over the past four months.
“They’ll be thinking about how this will look in their first half results, which they’ll release in February,” Jeffries analyst Matt Wilson told The Australian. “As they plan their end-of-year run, they’ll want to address this loss. No bank likes to lose market share.”
However, the bank is unlikely to reintroduce generous cashback offers for new customers, as it previously withdrew them due to eroding margins. Instead, the bank may consider offering higher discounts on its home loan rates, a move that could potentially put pressure on the margins of all banks and even contribute to pushing property prices higher.
UBS banking analyst John Storey anticipates a response from Commonwealth Bank's competitors, suggesting that pricing will likely be a key lever in their strategies.
“There are ultimately so many levers banks can pull. Obviously the most immediate one in our view is definitely around price,” Storey told The Australian. “So they can price a little bit more sharply.”
Based on APRA's latest statistics, UBS calculates that Commonwealth Bank's market share of the mortgage lending market stood at 25.4% at the end of September, a decline from 25.9% in May. In contrast, banks that have maintained cashback offers for new customers, such as ANZ and Westpac, have continued to gain market share, The Australian reported. Westpac's market share increased to 21.4% from 21.2% in May, while ANZ's share grew to 13.4% from 13.3% over the past four months.
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However, these gains in market share for ANZ and Westpac could potentially result in lower margins for the banks. JPMorgan analysts project that these share gains will pose a "headwind" to the margin of their retail bank units when they announce their full-year results in November.
Apart from increased competition, banks are also grappling with higher funding costs due to rising rates, The Australian reported. The more attractive interest rates offered elsewhere are forcing banks to pay more for deposits, thereby impacting their net interest margins. Analysts at JPMorgan caution that Commonwealth Bank's net interest margins, a key profitability measure, face downside risks from both competition on the asset side and changes in depositor behaviour as savers seek higher yields.
As inflation remains persistent, it is expected that interest rates will remain higher for a longer duration, adding further pressure to banks' net interest margins, according to The Australian.
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