Banks increase dominance over mortgage lending

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By Leith van Onselen

RP Data’s Cameron Kusher has this morning posted an interesting blog showcasing the banks’ increasing dominance of Australian mortgage lending, whose share has risen to nearly 96% from just under 94% a decade ago:

…the total amount of outstanding mortgage debt to banks as at February 2013 was $1.147 trillion, to all ADI’s it was $1.2 trillion. The data shows that banks are overwhelmingly the most popular institutions for mortgages in Australia, accounting for 95.8% of all outstanding mortgages. Of course the banking sector in Australia is dominated by four major players; ANZ, Commonwealth Bank (CBA), National Australia Bank (NAB) and Westpac. These four major banks, excluding CBA’s subsidiary BankWest but including Westpac’s subsidiary St George, hold 85.1% of all outstanding mortgage debt by banks operating in Australia and 81.5% of all outstanding mortgage loans to domestic ADI’s. These figures indicate that more than four out of every five mortgages in Australia are to either ANZ, CBA, NAB or Westpac.

Mortgage debt to banks

The banks’ increased mortgage share has arguably been at the expense of Australian businesses, with seperate Reserve Bank data showing the proportion of bank loans to businesses shrinking from 63% in 1990 to 34% currently, with housing’s share of loans increasing from 24% to 59% over the same period (see next chart).

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At the same time, the banks’ expanding asset base (mostly mortgages) has been funded, to a large extent, by foreigners, with bank gross external liabilities increasing from 8% of GDP in 1988 to 42.5% currently (see next chart).

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Anyone seeking a clue as to what has fuelled the massive expansion in house prices and mortgage debt across Australia since the 1990s need look no further than the above charts.

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  1. Maybe bank loans to business have been shrinking because many businesses have been shrinking or going insolvent as well, lets face it, there are 1000’s less businesses around as the economy got worse and the dollar went high killing export related business. Maybe this also has something to do with it ?

    • Not really. There are many small businesses that are funded through mortgages drawn on residential property. This is captured in the data as a residential mortgage, but in reality is a secured business line. From a small business perspective, it makes huge sense given the relative cost of funds for a business vs. a residential property.

  2. “At the same time, the banks’ expanding asset base (mostly mortgages) has been funded, to a large extent, by foreigners, with bank gross external liabilities increasing from 8% of GDP in 1988 to 42.5% currently”

    WOW that is a huge increase. Where does most of this money come from Europe, US etc? That would be interesting to see what percentage of that 42.5% comes from.

  3. Deus Forex Machina

    This bank offshore funding bit interesting when we think about what Debelle said about funding and the mining boom and bank borrowing offshore.

    Australia is really vulnerable to a capital flight at some point if things go awry – not forecasting it nor hoping for it but it is areal possibility if the economy slows as it might.



    • I dont believe that capital flight is really a problem for Australia, at least not in the short to medium term. My reasoning is very simple:
      The AUD is now an alternate reserve currency, so we must chose which path we take to resolve the Triffin dilemma. I’m certain the RBA has already decided that out best course is one where private Aussie debt funds the international demand for AUD. Logically a resurgent booming housing market creates the self-inflating asset base needed to support our CAD position and thereby supply liquidity and an asset base for the international demand our reserve Aussie$ status has created.

      The worrying part that the RBA’s chosen path a little like scrambling eggs, it is easy to do but impossible to undo. But that’s not a near term worry…

      • Aussie dollars can’t leave our shores. Capital flight is a concern for Portugal, Spain etc.

  4. I think the second graph says it all. Housing lending has increased at the expense of other types of lending. Buying and houses pretty much ‘is’ the economy. I wonder how far you’d have to extend that graph, at current trends, to have housing lending occupying the whole chart. Of course, it could never happen, but it makes me wonder how much larger housing can become as a proportion of all lending before it’s reached its limit. At 59% now, could it get to 75-80%? Just imagine that! I’d also be interested to see what percentage of business lending (34%, the red bit) is mining.

  5. Nothing could more clearly show how we are importing the worlds economic repression as private debt – jeez the least the RBA could do is a monetary head-fake to give all these yield seeking AUD speculators a bit of a fright.

    Is clear that the top four banks are funding private debt growth from offshore when you look at their deposit rates.

  6. One of the concepts that appears to have eluded individuals and the country collectively over the last few decades is that the decision to borrow involves a bit more thought than the willingness of someone to lend.

    Lenders will continue to extend money providing there is security they can recover against if your optimism regarding the merits of your leveraged investment proves excessive.

    Banks will lend to a fool to buy a house provided there remain some equity.

    Foreigners will lend to our banks while the risk of our banks defaulting appears low – which of course is the case as they are rightly confident that our spineless policy makers will serve up tax payer funds to make good any shortfall.

    Debt and leverage can be useful in the hands of the cautious and those determined to use it as a stepping stone to building reserves of capital. Namely, business people using it to creating income generating enterprises.

    In the hands of a fool speculating on asset price inflation and subject to all the cognitive biases that humans are prone it is dynamite.

    We are a rich country and it will take some time before all our assets are pawned at International Cash Converters but that is where we are heading.

  7. The banks are not lending 96% of the market, but they may be funding 96% of the market.

    Have a look at the wholesale division of the majors. CBA, Westpac, and NAB in particular.

    Think Liberty, Advantage and Peppers. I’m not sure what percentage of the market they hold. Higher risk and higher reward lending. Interesting stuff.