The entrance of one of Japan’s largest banks into the Australian home loan market is merely ‘a toe in the water’ for Japanese banks, say industry leaders.
It was revealed yesterday that Bank of Tokyo-Mitsubishi has signed a
$500m warehouse deal with AMP Bank, with a number of commentators speculating that the deal signalled the foray of Japanese banks into the Australian home loan market.
Aussie Home Loans CEO Ian Corfield, however, warns that it is still “very early days”.
“I think clearly this is a toe in the water, so you would think that that would encourage either them to go a bit harder or the Japanese lenders to come in over time, but equally it is very much just a toe in the water - you’re looking at $500m of funding in a $2 trillion market.
“I think the Japanese banks are usually pretty cautious. What I’d expect to see would be that if this $500m goes well for them they will extend further funding lines to AMP and other banks and probably want to see how that went before launching anything themselves - if ever.”
Kym Dalton, chairman of CreditED, says the level of interest around the deal is a far bigger indicator of the state of the Australian market than the deal itself.
“What the attention around this deal signals to me is the desire from some segments of the Australian home loan finance market to break what is perceived as the oligopolistic power of four major ADI’s.”
Warehouse financing of this kind has been “routine” in Australia since the mid-1990s, says Dalton, with funding provided by both domestic and foreign banks.
“These overtures received little or no attention and certainly weren’t perceived as signs that, for instance, ‘Canadian banks plan assault on Aussie home loan market’.
“This desire for ‘alternatives’ and ‘more competition’ is far more significant than the AMP Bank deal in itself.”
Corfield agrees that further competition would benefit the industry, but suggests this is more likely to come from smaller domestic lenders than overseas banks.
“I think things are pretty competitive, but I think we’ll see more intensified competition over the next couple of years from smaller lenders in Australia,” says Corfield.
“Don’t get me wrong, I think it can get more competitive, but I don’t think that’s about lack of players, it’s actually about some of the smaller players being able to effectively fund themselves so that they can compete on a more consistent basis.”
Corfield expects new entries to the market from overseas to be “fairly limited” over the next two to three years.
“Partly because of a long history of people trying it and failing, partly because it’s actually not an under-competitive market, and partly because you’ve got to sign onshore capital requirements which require even international lenders to put more capital onshore if that’s what they’re going to do.”
