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The secret weapon in banking’s margin-crushing mortgage war


Westpac’s NIM (excluding notable items) fell nine basis points in the six months to September 30, while NAB’s fell five basis points and CBA said in an update that its NIM was “considerably lower” during the September quarter. ANZ managed to increase its NIM by one basis point, but only because of well-publicised problems with mortgage processing (which saw processing times blow out to 25 days in some circumstances) that put its mortgage growth well behind that of the broader market.

Triggs expects NIMs will fall again in the first half of the new financial year. He tips ANZ’s NIM will drop by four basis points to 1.61 per cent (as the Melbourne bank likely ramps up rate discounting to regain mortgage momentum), while NAB’s NIM is tipped to fall three basis points to 1.66 per cent.

But the biggest falls will be at Westpac, where discounting is expected to see its NIM fall eight basis points to 1.9 per cent, and CBA, where Triggs tips NIM will fall 16 basis points to 1.88 per cent.

There are many moving parts in a bank’s NIM. Funding costs are of course vital, and it’s no coincidence that the 30 years of downward pressure on rates that Sulicich refers to has coincided with the steady decline in interest rates that has marked the past three decades on financial markets.

But with the mortgage market arguably as hot as it’s ever been in Australia, intense competition is forcing the banking sector to make a tough choice between growth and profitability. Grow in line with or above the broader market and you’ll keep customers but sacrifice margins. Growth below the broader banking system, and you’ll protect margins, but find yourself losing out on customers who might have a decades-long relationship with the bank.

MyState is one of an army of smaller challenger banks ratcheting up mortgage competition against the majors and putting pressure on NIMs; its $6 billion mortgage book grew at a record 19 per cent year-on-year in the September quarter or about 2.5 times system growth. For Sulicich, the industry dynamic of declining profitability means one thing to a smaller bank like his.

“As net interest margins get smaller and smaller, you have to do two things. You have to get bigger, and you have to be more efficient. And what we’ve done is build a very strong platform to be able to get bigger and more efficient at the same time.”

MyState CEO Melos Sulicich Peter Whyte

While MyState has also reported competitive pressure in the mortgage market, its NIM actually increased 10 basis points in the 12 months to June 30, from 1.86 per cent to 1.96 per cent.

But Sulicich’s growth has been driven by perhaps the most prized characteristic in the current competitive market: speed.

A survey of mortgage brokers conducted earlier this year by Macquarie found that while price was the most important factor for customers (nominated by 89 per cent of brokers) time to approval was a close second (nominated by 85 per cent of brokers).

And as approval times have ticked up in 2021 under the avalanche of applications, (from an average of 13 says in 2020 to 15 days) speed has become even more vital; the importance of time to approval to brokers leapt 13 percentage points from 2020 to 2021.

For the past few years, MyState has been able to provide conditional approval for a mortgage application within 48 hours; by way of comparison, brokers in the Macquarie survey, which covered the country’s largest institutions, said Macquarie Bank had the fastest time to approval in the market, with a weighted average of six days.

Winning mortgages through speed has also been vital in helping the bank, which is based in Tasmania, expand up the east coast of the mainland.

Sulicich explains that his bankers are ruthless about turnaround times and in effect manage their growth via application volumes. If there are too few applications coming in, they will be more proactive on marking and pricing. If there are too many, MyState will pull its horns in, so its two-day turnaround times are not jeopardised.

“Because once your mortgage processing system gets in trouble, then it is really hard to get back in line,” Sulicich says. “What’s the point of having a market-leading rate or a special offer in the market if a customer comes to you and says ‘I want to buy a house, and you’ve got a great rate’ and then you say ‘well, give me your application in three weeks time I’ll come back to you.’ You’ve got to make life easy for the customer and your distribution channels.“

It’s a sentiment that ANZ chief executive Shayne Elliott and his Australian boss Mark Hand would no doubt agree with; they are pouring both human and technological resources into lifting the bank’s mortgage processing times. While there has been some recent…



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