Over the past year, three banks have pulled away to dominate the mortgage market. Breaking their stranglehold won’t be easy.
With bank valuations still well above long-term averages, and every investor and their dog talking about the rotation away from financials and into resources, the question of what rate rises will mean for Australian bank stocks is going to become lively.
Morgan Stanley analyst Richard Wiles says the 50 basis points of rate increases priced into money markets should provide a short-term boost to bank net interest margins of between 2 basis points and 3 basis points, with most of that coming from the fact banks will earn a higher rate of interest on deposits than they will pass on to customers.
Longer term, higher rates should also be good for the banks’ replicating portfolios and equity hedges.
But on the other hand, higher rates have historically weighed on bank price-to-earnings multiples. With bank valuations still strong, it appears that most of the good news has been priced in, so any boost to bank stocks from rate rises is probably going to be modest.
And that’s before we tackle a bigger question: what will rate rises do to economic growth and demand for credit?
The latest figures from the prudential regulator show credit growth is fairly booming, with three-month annualised system growth running at 9 per cent in December, the fastest pace since 2022, driven by 8 per cent growth in house lending and 12 per cent growth in business lending.
The numbers suggest that the 0.75 per cent of rate cuts the RBA delivered last year are still working their way through the system, which is logical given the lags with which rate movements work.
But the question of whether, how and when rate rises might cool growth is very much open.
What isn’t up for debate is the way the mortgage market changed last year, as the traditional dominance of the big four retail banks morphed into a story of the big 2½.
According to UBS banking analyst John Storey, Commonwealth Bank, Westpac and Macquarie captured a staggering 73 per cent of the flow of new mortgages in December; CBA leading the way at 28 per cent share, followed by Westpac at 23 per cent and Macquarie at 22 per cent.
What’s interesting is the change over the course of 2025. In January, those three banks accounted for 50 per cent of flows, as Westpac struggled to find its groove and ANZ grabbed a 14 per cent share of flows, compared with a paltry 2 per cent in December.
The share of mortgages written by the majors has remained reasonably steady, rising from 59 per cent in January 2025 to 63 per cent in December.
Across the course of the year, the flow share of regional banks Bendigo and Bank of Queensland dipped from 5 per cent to negative 1 per cent, underscoring the challenges of size and scale in this market.
The real story here, of course, is Macquarie, which continues to grow both mortgages and deposits by at least three times the rate of the broader banking system.
Its three-month annualised growth in all mortgages (owner-occupiers and investors) is running at 7.1 per cent, more than three times the growth rates of CBA and Westpac.
Its three-month annualised growth in total deposits (retail and business) is running at 6.4 per cent, compared to CBA at 3 per cent.
The big four are still the big four, and flows can change sharply from month to month. But the data tells us Macquarie’s appetite for disruption remains strong.
The regionals are clearly feeling it – but consider the position of ANZ, which is promising to lift growth in its retail business under chief executive Nuno Matos.
How much profitability will ANZ need to give up if it is to wrest back share of new mortgage sales in a market where everyone is struggling to keep up with the Millionaires’ Factory?
Source: https://www.afr.com/chanticleer/the-big-four-is-becoming-the-big-two-plus-macquarie-20260203-p5nz4i