Banks sieze massive market share

An interesting piece of research from Deutsche this afternoon helps explain the large rise in refinancing apparent in this morning’s May housing finance data. According to Deutsche:

Housing finance up 0.9%mom ex-refinancing, evidence of ‘churning’ between bank and non-bank lenders.

Excluding re-financing, housing finance rose by 0.9%mom in May, following a 3.7%mom rise in April. The rise was driven by investor finance, up 4.4%mom, while owner-occupier finance slipped 1.2%mom following a very strong 6.7%mom rise in April.

Perhaps the most interesting feature of these figures is the fact that banks’ market share rose to its highest level since March 2009, up 0.7ppts to 92.5%. This arrests a decline in market share that had started to emerge in late 2010 reflecting a rise in finance accounted for by credit unions. The relatively large change in lender composition in the month also squares with the relatively large disparity between the headline outturn (including re-financing) which rose 2.9%mom and the ex- refinancing outturn of 0.9%mom.

We suspect that much of the recent volatility in the monthly housing finance numbers reflects shifting composition of finance among lenders (Figure 2). From 1 July this year, for example, the Federal Government introduced a ban on mortgage exit fees on new housing loans. While none of the data reported to date have been affected by this legislation, we suspect that lenders’ policies have been adjusted in anticipation of its introduction, and this has led to more than the usual level of churning between banks and non-bank lenders. The overall trend, however, remains soft: both owner-occupier and investor finance levels remain materially below recent peaks. With the Reserve Bank remaining focussed on the inflationary consequences of ‘Mining Boom Mark II’, we continue to be pessimistic about a substantial improvement in the housing finance pulse over the period ahead.

Full report below.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

Comments

  1. The Deustche Bank also said today in an article ‘Aus Homes May Cost Banks $7.5 Billion in a Year’ that “banks face losses ranging from A$61 million in the mildest scenario to A$41.7 billion” in the next year.
    “The smallest loss would result from a 1 percent default rate and a 10 percent home-price decline, while the worst-case scenario is based on a 15 percent default rate and a 60 percent plunge in housing values, Deutsche Bank said.”
    http://www.bloomberg.com/news/2011-07-11/australian-homes-may-cost-banks-7-5-billion-in-a-year-deustche-bank-says.html
    Ouchie.

    • Thanks Ouchie!

      That’s a worst-case scenario that is, for once, a real “worst-case!”

      A 15% default rate against a 60% decline in values? If I were one of those special souls living in the nappy belt with a house loan at 80%+ LVR, two car loans, three credit card bills, a couple of interest free arrangements, and less than a month’s worth of savings in the bank (and there are a whole lot of these poor buggers), I’d be inclined to default and go bust too! You’d be back on your feet and discharged long before the house would have recovered half of its lost value!

      Still…stupidity got them there in the first place, so it’s unlikely that they’ll use intelligence to get themselves out of this situation any time soon.

  2. Welcome to the Great Moderation…

    The number of loans is recovering but the average loan size is pretty flat, indicating that we have at least learned something from 10 years of feverish consumption fuelled by mortgage debt – or at least let’s hope we have.

    Another 10 years of this and we may just pull through the GFC unscathed!!

    On a much more interesting note, our tafe teacher treasurer has fixed banking sector competition, so from this month, let’s look forward to a steady drop in the banks share from 92.5% starting from next month.

  3. …and right before your very eyes; Australia’s banks are now well and truly TOO BIG TO FAIL! What a gargantuan failure failure by our regulators.

  4. The quantity of new loans is totally irrelevant.

    It’s the net debt outstanding that matters.

    Credit creates deposits.

    A huge jump in new $350K loans to buy from sellers with $380K loans means the destruction of equity.

    NET NEW DEBT / CREDIT is what matters.