Ralph Norris, the CEO of the Commonwealth Bank of Australia, has recently stated that competition is set to return to the Australian mortgage markets, with a number of non-bank lenders showing signs that they are ready to re-enter the mortgage sector again. This follows a mass exit of smaller, non-bank providers from the market during the global financial crisis.

Many non-bank lenders withdrew from the market during the downturn, but Norris believes that they will soon start to return to the market with some already said to be writing mortgages again. The move will increase rivalry in the market, with smaller lenders returning to take on their larger rivals again, and this could come as good news for borrowers, as it will mean greater choice and could result in better deals as the rival lenders compete with one another. Britain's Virgin Money is already said to have restarted Australian operations, and many others are expected to follow suit.

Norris also warned that competition could be further increased by new entrants to the Australian mortgage market that come from abroad. He said that the Australian market presented very good opportunities for offshore banks in places such as Asia, particularly in cases where the banks were currently operating in weak economies.

Mr Norris stated: "Competition is also likely to come from new entrants into the Australian banking sector from offshore. The strength of the Australian economy and our proximity and links with Asia present a very appealing option for offshore banks, particularly for those banks faced with a subdued home economy."
The Commonwealth Bank chief said that a number of factors would be likely to contribute towards greater competition and rivalry in the mortgage sector. He said that increased activity in the securitisation market and rising interest rates would be amongst these factors.

The re-entry of smaller lenders and the entry of new lenders to the Australian mortgage market is likely to cause concern for the larger banks, which gained a monopoly in the market after the smaller lenders withdrew during the financial crisis. The greater competition will mean that larger banks have to work harder to maintain their share of the mortgage market. Mr Norris added that another concern was that some non-bank lenders may not be as strictly regulated as the banking industry.

Speaking at a recent FINSIA conference in Sydney he stated: "As the cost of credit to consumers continues to rise, it does send an invitation to non-banking institutions to explore ways to offer low cost loans. On the upside, this has the potential to promote innovation within the financial sector. On the downside, the risk of non-regulated players entering the market and taking increased risks with the lending and borrowing practices is something for the banks to watch carefully."

He also said that the rivalry and competition that had driven banks to increase riskier lending in the past was still evident, but that the lessons learned during the financial crisis would influence the nature of the competition.

Article Written by Michael Sanz