The major banks have reported mixed results regarding the share of home loans originated through the broker channel.
The half-year results (1H19) of the major banks have revealed that for ANZ and NAB, the share of home loans settled by the broker channel increased when comparing the first six months of their reporting seasons to the previous corresponding period, but decreased for the Commonwealth Bank of Australia (CBA) and Westpac.
While some of the major bank CEOs have said that the behaviour of broker flows is a reflection of consumer preferences, others have suggested that they are tied to bank strategy.
Where brokers flows increased
ANZ reported that the share of broker-originated home loans as a proportion of their mortgage flows increased from 56 per cent in 1H18 to 57 per cent in 1H19, with NAB’s share increasing from 41.6 per cent to 46.2 per cent.
ANZ CEO Shayne Elliott and NAB’s chairman and interim CEO Phillip Chronican told The Adviser following their respective 1H19 presentations that the trend was attributable to changing “market preferences”.
Mr Elliott said: “We don’t target [broker growth], it’s something I wish was zero because I’d prefer that everybody got into their car and went to an ANZ branch, went in and got a loan.
“But that’s not realistic. We’re responding to customer preference, not driving it. Customers are voting with their feet.”
Echoing Mr Elliott’s sentiment, Mr Chronican said: “We would prefer to be able to sell more of our home loans through our own branded network, but nonetheless, the market preference has been something like 40 to 50 per cent of all mortgages are currently being originated through the broker channels.
“We need to be aware of that and position our business around it.”
Where broker flows dropped
However, in contrast to ANZ and NAB, the share of broker-originated home loans settled by Westpac and its subsidiaries (St. George, BankSA and Bank of Melbourne) dropped down from 52 per cent in 1H18 to 45.6 per cent in 1H19.
According to Westpac CEO Brian Hartzer, weaker mortgage growth was partly attributable to enhanced competition in the mortgage market, noting the continued weakness in demand for credit.
Mr Hartzer intimated that brokers could be sending more loans to smaller banks due to their processes.
The Westpac CEO said: "[Our] sense is that the regulators have focused initially on the big four banks, understandably because we’re a large part of the volume.”
Mr Hartzer continued: “[That has] led – based on the feedback we get from brokers and others – to some disconnects in terms of the process that’s being required by large banks versus the process that’s being required by smaller banks.”
Meanwhile, CBA figures show broker-originated loans dropped from 46 per cent in 1H18 to 40 per cent of flows in 1H19.
In CBA’s 1H19 presentation notes, the bank stated that it “remains focused on its core markets of owner-occupied proprietary lending”.
Earlier this week (13 May), CBA CEO Matt Comyn highlighted the utility of the bank’s branch network amid reports that CBA is planning to reduce its physical presence.
“We maintain the largest branch network [and] we believe that it’s an important strategic asset,” he said.
“Clearly, over time, both the number of branches and the size of those branches has reduced and is likely to continue to reduce, but certainty we’re not contemplating any large-scale branch reduction in the near term.
“If you look at the way we’ve managed our physical footprint over the last few years, it’s been fairly modest in terms of those branch reductions and really in line with what we’re seeing in terms of customer preferences changing.”
The chief executive added that the branch network continues to play an essential role in driving new business to CBA.
“We believe the branch network enables us to gather deposits very well across the entire retail and business bank, and we also think it’s a critical element of being able to serve our customers directly for their home loan needs,” Mr Comyn added.
The comments contrast with those of ANZ CEO Shayne Elliott, who told the financial services royal commission in November that he believed the branch network was “not terribly efficient” at originating home loans, and noted the utility of the broker channel.
“[I] would say for ANZ – and we may be different from our peer group – [less] than a third of home loans are originated through a branch,” he said.
“[Fifty-five] per cent come through brokers and another roughly 15 per cent come through our mobile banking network.”
While the trend in broker-originated volume growth is diverging among the big four banks, the latest research commissioned by the Mortgage & Finance Association of Australia found that the broker channel’s share of the overall market hit a record high for the December quarter.
According to the data collected by research group Comparator, broker market share increased to 56.8 per cent in three months to 31 December 2018, up from 53.6 per cent in the previous corresponding period.
While down from 59.1 per cent in the previous quarter, the year-on-year percentage growth (3.2 per cent) was the largest recorded in five years.