Westpac uses rate cuts to push Bank of Melbourne challenge to RAMS discount brand
Westpac has used the RBA cash rate cuts of May and June to position Bank of Melbourne as its budget bank brand among its multi-brand offering while reeling in the discounts offered by its mortgage franchise RAMS.
Before the RBA began cutting the cash rate in November, St George, BankSA and Bank of Melbourne all offered a benchmark standard variable rate of 7.8%, with Westpac’s six basis points higher at 7.86%
RAMS was significantly cheaper with a rate of 7.63%, a 23-basis-point difference.
Fast-forward eight months and Westpac still has the highest standard variable mortgage rate at 6.89%, but Bank of Melbourne is now the lowest of the budget bank brands, with a standard variable mortgage rate of 6.8%, followed by BankSA (6.85%) and St George (6.86%)
RAMS maintains its position as having the lowest standard variable rate of the Westpac brands at 6.75% but is now only five basis points lower than Bank of Melbourne – thanks mainly to RAMS not passing on any of the December RBA cash rate cut – and only 14 basis points lower than Westpac.
Rate changes for Westpac brands following start of RBA cash rate cutting cycle in November 2011
Brand | SVR June | SVR May | SVR Feb | SVR Dec 2011 | SVR Nov 2011 | SVR Oct 2011 | Total change since Nov |
Westpac | 6.89% (- 20 bps) | 7.09% (- 37 bps) | 7.46% (+10 bps) | 7.36% (-25 bps) | 7.61% (-25 bps) | 7.86% | -97 bps |
St.George | 6.86% (-18 bps) | 7.04% (-38) | 7.42% (+12 bps) | 7.30% (-25 bps) | 7.55% (-25 bps) | 7.80% | - 94 bps |
BankSA | 6.85% (-19 bps) | 7.04% (- 38 bps) | 7.42% (+12 bps) | 7.30% (-25 bps) | 7.55% (-25 bps) | 7.80% | - 95 bps |
Bank of Melbourne | 6.80% (-19 bps) | 6.99% (-41 bps) | 7.40% (+10 bps) | 7.30% (-25 bps) | 7.55% (-25 bps) | 7.80% | -100 bps |
RAMS | 6.75% (-21 bps) | 6.96% (-32 bps) | 7.28% (+10 bps) | 7.38% (0) | 7.38% (-25 bps) | 7.63% | - 88 bps |
Bank of Melbourne is also trying to convince borrowers that it is a separate entity to its big four parent, with the ads in its windows talking about it matching the big four on price while beating them on service.
“Not a bad bit of spin for a bank wholly owned by the country's second-biggest major. It's a question of whether customers will buy it,” wrote Stewart Oldfield, an analyst at Investorfirst Securities, in the Fairfax press.
Oldfield says Westpac’s multi-brand strategy in Victoria is about trying win new customers by offering them a “regional bank” experience in a state where regional bank representation is low compared with the national average.
“Privately, the bank also highlights the ability to price brands differently, depending on market conditions,” he says.
What is also noticeable is that the range of standard variable rates offered across the five brands has shrunk from 23 basis points in November to just 14 basis points in June, providing less of an incentive for borrowers to refinance from one Westpac mortgage brand to another.
Westpac kicked off its multi-brand mortgage strategy –likened to that of consumer products giant Unilever – following the outbreak of the GFC.
It acquired the RAMS brand name and franchised stores for just $140 million in January 2008 following the disastrous float of the then non-bank lender.
One month later Gail Kelly left her role as St George chief executive to assume the position of Westpac CEO.
Twelve months later Westpac bought St George for $18.6 billion.
Westpac relaunched the Bank of Melbourne brand in August last year, replacing St George in the Victorian market.