Banks See Chance To Lift Loan Gains

Banks See Chance To Lift Loan Gains

The Age
8 May 2008
Vanessa Burrow

THE shake-up in credit markets will actually help banks increase the margins they earn on mortgages, according to some industry players.

Since the start of the year, lenders started raising interest rates on home loans independent of the Reserve Bank.

They did so to cover the added cost of short-term funding, which became more expensive because of the US subprime mortgage crisis and unrest on the credit market.

But BankWest chief executive retail Ian Corfield, speaking at a Retail Financial Services lunch in Melbourne, predicted margins would increase in the coming months.

"I think there's been a fundamental restructure in pricing and the availability of funding," he said.

"Even when the funding market opens back up again, it won't go back to where it was."

That means banks will be able to retain their higher pricing and, in Mr Corfield's opinion, even partially restore their margins after a period of contraction.

Standard variable rates at the big banks have been increased to nearly 9.5% a year but the Reserve Bank this week left the official cash rate at 7.25%.

ANZ Mortgages Australia managing director Michael Rowland said current market turmoil had allowed bank and other financials to rebuild margins, even as the price of wholesale funding had increased. But, he said, they would not return to the levels seen two or three years ago.

Fluctuating margins and the limited size of the Australian market would prompt consolidation in the banking sector, said Bank of Queensland group executive of retail financial services, Robert Hines.

There was not enough room for four or five major banks doing exactly the same thing, he reasoned.

"I think consolidation is inevitable," Mr Hines said.

BankWest's Mr Corfield also denied rumours that the bank's British parent company HBOS was looking to sell the business unit.

Late last month HBOS announced a #4 billion capital raising and there was speculation HBOS would sell BankWest, which contributes only about 5% to the group's profit.

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