Margins on home lending will start to fall to historical levels, Mark Joiner, chief financial officer, told
The Australian.
Joiner said the adoption of the Basel II regime for working out bank capital, in 2008, doubled the industry's average return on equity for a home loan from about 22 per cent to a stunning 45 per cent.
I find the national sport of bank bashing a bit ironic because it tends to focus on fees and the passing on of higher funding costs, when the real windfall relates to neither of those issues," Mr Joiner told The Australian.
"There are super profits in mortgage lending because the banks, with the transition to Basel II, took more than half the capital off the table and the margins never adjusted down to reflect that."
Cuts in margins in home lending will reflect an improvement in competitive dynamics, according to Joiner, including cuts to exit fees on home loans (though only once ASIC cracks down on the practice) and improved service standards from banks such as NAB.