Big banks and brokers the best of frenemies

John Kavanagh

Banks are looking for ways to preserve margins in their home loan businesses and one area where they are taking a harder look is their relationships with brokers.

The big banks used to say that the return on a loan sold through a proprietary channel or a broker was the same. They are not saying that now.

Last week, NAB chief executive Andrew Irvine told the Sydney Morning Herald that home loans coming through the broker channel “were being written below the cost of capital”.

Westpac chief executive Peter King said earlier this week that the bank would like more “first party” flow but that would require more resources.

King said returns through the broker channel were “slightly different” to loans sold through proprietary channels and an additional benefit of proprietary sales was that they provide an opportunity for cross-sell.

Earlier this year, Commonwealth Bank chief executive Matt Comyn said the bank was originating more mortgage through proprietary channels, one of a number of moves aimed growing in ways that would guarantee a return above the cost of capital.

In November, Bendigo and Adelaide Bank began to rollout origination of Bendigo Bank branded home loans to brokers, initially via Finsure. Bendigo progressed to a nationwide rollout to around 3000 mortgage brokers a couple of weeks ago.

Brokers wrote 71.8 per cent of all home loans in the December quarter last year, according to Mortgage and Finance Association of Australia figures – a record for the industry. Growth in share over the years has attracted more brokers to the industry. The MFAA reported that broker numbers were 19,456 in the March last year – also a record. 

Whatever their rhetoric, the big banks appear to be as dependent on brokers to sell home loans as any other lender.

The proportion of home loans on NAB’s books that were sold through brokers has climbed steadily from 46.1 per cent in the September half 2022 to 51.4 in the latest half.

In the March half last year more than half (51.5 per cent) of the Australian home loans on Westpac’s books had been originated through the bank’s proprietary channels. That proportion fell to 49.7 per cent in the latest half, with 38.6 per cent of new mortgages settled during the half originated through proprietary channels.

The proportion of home loans on ANZ’s books sold through brokers has grown from 54 per cent in the March half 2022 to 58 per cent in the latest half. The proportion of new mortgages settled during the latest half that were sold through brokers was 65 per cent.

The only one of the big four having any success growing proprietary distribution share so far is CBA. It reported at its December half briefing that the proportion of home loans on its books sold through proprietary channels rose slightly from 53 per cent in the June half last year to 54 percent in the December half.

Excluding its subsidiary Bankwest, that proportion rises to 61 per cent in the December half.