Nabbing Customers, Not Profits

National Australia Bank has continued to win market share in key lending and deposit areas from its big-bank competitors, leaving some analysts to question how the bank will manage any impact of discounting on earnings. The Melbourne-based major – which has niggled its major rivals with its ”breaking up with the big four banks” marketing campaign – grew total lending market share in the year to October by 1 per cent. In contrast, ANZ, Westpac and Commonwealth all posted slight falls, according to data published by the banking regulator, the Australian Prudential Regulation Authority. 

”NAB is still taking market share in most segments,” Royal Bank of Scotland analyst Andrew Lyons said. ”NAB is clearly outperforming its peers.” Under boss Cameron Clyne, NAB has been aggressively discounting to win market share, including a low-cost online operation called UBank which has offered market-leading rates on home loans. The APRA data shows NAB grew its market share in home loans by 1 per cent while the other majors fell. In other categories, NAB outstripped its competition in business lending, growing market share by 1.5 per cent compared with a small rise at Westpac and falls at Commonwealth and ANZ. RBS calculates NAB is growing business lending at 10 per cent per year.

NAB also topped credit card market share growth, rising 0.5 per cent compared with ANZ and CBA, which also grew slightly, while Westpac fell 1 per cent. In deposits, NAB has made a number of competitive offers to win customers. NAB was a ”winner” in four of five key lending and deposit categories on market share and came second in the category it didn’t top, Merrill Lynch analyst Matthew Davison calculated. Commonwealth Bank, under recently departed boss Ralph Norris, was a market share loser in four of five categories. NAB’s grab for market share left some analysts questioning how the bank will balance discounting with maintaining margins. It has already broken ranks with the other big banks, failing to pass on the full 25-basis-point cut to official interest rates from the Reserve Bank on Melbourne Cup Day.

BBY banking analyst Brett Le Mesurier said: ”They will have to modify their behaviour. ‘They expect their wholesale funding costs to continue to rise and you would infer from that that unless you did something about your loan margins, your earnings would be under pressure and I don’t expect their earnings to be under pressure.” Mr Le Mesurier said the bank had been targeting ”more volume, lower growth” and it was questionable whether that would benefit shareholders.

”From their accounts to September it looked to me like it was a pure ‘price versus volume’ trade-off. So more volume, lower price. And you multiply the two and you end up no better from a growth perspective.” Customers benefiting from the competition between the banks may see special offers dry up as funding costs rise. With more cuts to official interest rates forecast, customers may also not see the full benefit passed on. ”They will find there is probably another 50-point cut in cash rates so mortgage rates will fall – but not by 50 points,” Mr Le Mesurier said. ”In absolute terms, they’re still better off but the customers are still wearing the pain of the increased costs of funding.”

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