Suncorp demonstrates smaller banks can compete with the majors

While the major banks still dominate the lending landscape, accounting for about 80% of all mortgages written in Australia, second-tier lenders can compete and in some cases do better than their big rivals by focusing on specific markets and playing to their strengths. 

This has been starkly revealed in the release of AFG’s inaugural first Competition Index, which shows that Suncorp wrote an impressive 14.9% of all first-home buyer loans in October, nearly double that of NAB (7.7%) and higher than ANZ (12.5%). 

Suncorp’s share of the first-home buyer market was almost triple its overall market share of 5.1% captured in October, up from just 3.1% in November 2010.

The proportion of the market seized by Suncorp is significant, since AFG’s network of brokers account for around 10% of all home loans written in Australia, so the index can be viewed as something of a barometer of consumer confidence (in this case first-home buyer confidence) in lending institutions.

It is also significant when you consider that Suncorp has a mortgage book of about $30 billion (with about $21 billion of this lent to owner occupiers), small in comparison to NAB’s $170 billion book ($121 billion lent to owner occupiers) and ANZ’s $160 billion book ($115 billion lent to owner occupiers). 

The strong showing of Suncorp in the first-home buyer space was noted by AFG’s head of operations, Mark Hewitt, who says the mortgage market has become a lot more competitive in recent months. 

“Suncorp have adapted their deposit requirements to assist First Home Buyers, in particular construction loans, and the results speak for themselves,” he says. 

The Queensland-based bank was not the only smaller lender to demonstrate it can compete with the bigger brands in the first home buyer segment, capturing 5.9% of the market, not far behind heavyweights Westpac (6.5%) and its subsidiary St George (6.4%).

Not only does the index show the ability of a smaller lender to compete, but it also shows that being big and having access to millions of advertising dollars does not guarantee success in key markets. 

In the first-home buyer space, the NAB brand was a resounding flop in October, capturing a pitiful 1.4% of the market. The bank had better success with its Homeside product, a product sold exclusively through brokers, capturing a more respectable 6.3% of the market. 

If the bigger banks wish to capture more of the first home buyer market, the performance of Homeside versus the NAB brand suggests reaching out to the broker channel in a more meaningful way may help increase the flow of business.

Perhaps NAB should follow ING Direct and Suncorp’s lead, which have both built up strong ties with the broker community. 

ING Direct recently announced that it was increasing its broker distribution team in the lead up to 2012, with new appointments geared to improve service and relationships with the third party channel while Suncorp recently appointed St. George’s former broker chief, Steven Heavey, as its head of intermediaries. 

Overall, second tier lenders accounted for 27.9% of the first home buyer market in October, a higher proportion than their overall market share of around 20%. 

This is significant given expectations by the likes of BIS Shrapnel’s Angie Zigomanis, who forecasts first home buyers to drive the housing recovery in 2012. 

Ten biggest lenders to first home buyers in October (non-majors in red) 

Source: AFG

The strongest player in the first home buyer segment in October was the Commonwealth Bank, which in combination with subsidiary BankWest accounted for more than a third (36.8%) of all first-home buyer loans processed by AFG brokers. 

Overall the ANZ brand captured the great share of the mortgage market accounting for a 20.1% of all loans written in October by AFG brokers, followed by CBA at 18.7% and Westpac at 13.7%.