In this update write about the changing mortgage books at the big banks and what that says about new debt people are taking on, and how that correlates to recent house price jumps, and potential future increases.
Big banks big books
Australia’s total mortgage debt sits around the $1.8 Trillion dollar point right now, and of that around three quarters sits with the big four Australian banks, being of course CBA, Westpac, ANZ and NAB.
June figures released by APRA (the Australian Prudential Regulation Authority, who is ‘responsible’ for oversight of banks) showed the mortgage books at the big banks swelling upwards during the month.
Westpac’s mortgage loan book grew by $1.8 billion and NAB’s grew by a nominal $300 million. ANZ did the worst, probably because they have been moving the goal posts like I said back in March, and as a result seen their book shrink by $1.9 billion. CBA must have seen those customers walk right into their branches as their book grew by $1.9 billion.
Bank profits are still tracking as expected by the market. Which is slightly down from recent years, but given the hundreds of millions of dollars they have had to pay to customers they didn’t serve properly, to the government for breaking the law and to their consultants and lawyers to advise them on how to get away with it and start to fix it up, they have got off pretty well so far.
But, yesterday the ASX lost $60 Billion in value due to recession fears, mainly from US/China conflicts in trade and currency. Notably, the big banks all lost a few percentage points of value as well. CBA 3%, Westpac 3.2%, ANZ 3% and NAB 3.1%.
The growth in the mortgage books at the big banks (and others) is definitely due to a confidence boost after the Federal election, and compounding that recent changes in assessment rates should continue to build momentum in the housing market.
But over the year from June 2018 – 2019 housing credit growth slowed by 5%. Which forewarned the 10% drop in prices across Sydney as credit drives property prices in the short term.
Overall, these numbers show that people are borrowing again.
We have seen clearance rates over the past few weeks spike to highs not seen in years. This is partly a misleading statistic as we also have a record low number of listings for properties being sold, so there is likely an imbalance in supply to (pent up) demand. But prices are flying sideways instead of downward since June which is showing that we have probably hit the bottom of the market and are on the gradual recovery (pending a recession changing our course).
The up-coming Spring home sales market is likely to be either a last hurrah before stagnation or the start of another boom.
Attacked from all sides
Not only are the big banks share price under pressure, their costs are blowing out, profit is fickle, but competition is starting to chip away at their oligopoly position.
I’ve written before about the changing competitive context traditional lenders face, including the forthcoming $2 Billion dollar debt fund by the government, and rising “neo-banks” that are mobile and digital first banking providers, but right now we can see serious borrower sentiment shifts.
The big banks are being attacked from every front. Home loans, business loans, credit cards (After Pay, which CBA is trying to counter), foreign currency transfers (Transferwise just launched in Australia this week) and transactional bank accounts.
This is evident as the credit growth for the big banks is at records lows, but also with credit growth at alternative lenders, particularly non-bank lenders.
Non-bank lenders such as La Trobe Financial (owned by Blackrock), Pepper Money (a KKR company, now where Mr Turnbull consults) and Bluestone (owned by PE firm Cerberus) continue to take market share from the banks, just as I pointed out last year.
It is interesting to see very large US firms buying up mortgage lenders in Australia. In the UK non-bank lenders have roughly 40% market share, currently in Australia it is somewhere around 3-5%. Which means there is a lot of growth potentially ahead of us.
But the growth wont entirely come from non-bank lenders, it will also come from the neo-banks like :86 400, Xinja, Volt Bank and Judo Bank on the business loans side.
It will be amazing to see these neo-banks get into the hands of customers in the real world. Skyward Financial is going to be working with a few of them and helping borrowers explore them as potential options when looking for a loan.
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