NAB is the only one of the big banks to have grown home loan market share in recent months but one analyst reckons this growth, which has all come through brokers, will drive the bank’s margin lower.
Banks say there is not much difference, in terms of margin, between originating a home loan through proprietary channels or through a broker.
But Macquarie Securities takes a different view, arguing that more competitive rates offered to brokers plus ongoing trail commissions mean that “broker business comes with lower margins.”
In a recent note on the big banks’ mortgage businesses, Macquarie said: “We estimate that broker originated loans are around 25 bps below proprietary loans. Furthermore, while broker loans come at a lower processing cost to banks, we estimate that around 25 to 30 bps per year in broker fees comes off mortgage margins.
“As a result, we estimate broker originated loans are written at around 45 to 55 bps lower margins than proprietary loans.”
It said Commonwealth Bank is the only one of the big banks to have had any significant growth in home loan business through the proprietary channel in the past five years, and NAB has gone backwards in that channel. It said all NAB’s recent growth has been through brokers.
According to APRA data, NAB’s mortgage book grew at more than twice the rate of system growth over the three months to the end of July, while ANZ, CBA and Westpac all lost share.
Given the margin impacts of originating through brokers versus proprietary channels, Macquarie estimates that “NAB has suffered a 2 bps [net interest] margin headwind due to its growth in the broker channel.”
And “with the highest broker channel representation in the first half of 2021/22 relative to peers, we believe NAB’s growth outlook is likely to slow unless the proprietary channel starts to perform.”
Macquarie also reckons that customers who come through brokers are more price sensitive and more likely to refinance.
“With a large proportion of attractive fixed rates maturing in the next 18 months, we think the industry’s churn level will increase and banks with more broker originated loans in 2021 are likely to be at greater risk,” it said.