Auswide Bank ‘relieved’ it didn’t offer cashbacks

At Auswide Bank’s annual general meeting (AGM) on Friday (24 November), the lender’s retiring managing director Martin Barrett revealed margin would continue to be an ongoing point of focus amid “fierce” mortgage competition.

Mr Barrett stated that the current economic environment had been continually changing, with interest rate rises having led to increased customer activity in securing the best rates possible for home lending and deposits.

He commented: “The speed of change, record interest rate rises, cost-of-living pressures, and intense competition have tested our customer contentment on deposit and lending rates, hedging assumptions, expense and investment growth, and profitability of new lending.

“Competition has been fierce. I won’t call it the least rational I’ve seen, but it’s close and interestingly it’s mostly been driven by the big banks trying to recoup market share.

“Margin and cost pressures therefore have quickly become material headwinds.”

Mr Barrett added that as several banks looked to recoup market share, cashback offers “as high as $6,000 per refinanced home loan” were introduced.

“This drove a substantial increase in customer churn across the industry as home borrowers chased these offers whilst demanding the lowest rates,” Mr Barrett continued.

“Some borrowers switched several times, collecting several cashbacks from different lenders in one year!

“Thankfully we have nearly, but not totally, seen the conclusion of these offers. At the time and in hindsight, I’m relieved Auswide Bank did not offer these inducements particularly recently when interest rates for new home borrowing have been, at times, less than 100 bps above term deposit offers.”

Mr Barrett added Auswide Bank was not alone in its focus on margins, as other large banks, along with the introduction of cashbacks, commented on the tough market.

He noted: “We are not alone with numerous announcements by others on margins already made and I suspect more to come. I was particularly interested in the three big banks that have reported in November for FY23 end as at 30 September 2023.

“All experienced margin falls and impacts on profitability in their retail banks.

“They have cited further margin pressures with one of the CEOs stating that new home lending margins were the thinnest he has ever seen and another suggesting a peer is heading for the biggest fall in margins in banking history.”

However, he noted that the “home lending market does appear to be steadying, however, is yet to find equilibrium”, adding that “new home lending margins have improved recently but are not at the levels they were in 2022”.

Mr Barrett stated Auswide expected that “the worst is behind us on margins”, with expiring low-rate fixed loans that will convert to the current higher rates “providing ongoing margin recovery”.

He added that the lender’s deposit book had also settled as “it seems competition for deposits has also subdued”.

Looking ahead, Auswide’s managing director commented: “With strong capital, a bigger high-quality loan book, and a period of strong investment in the business, we are ready and able to grow again as profitable lending returns.

“Pleasingly recent loan flows have picked up and are looking positive for a good start to the second half.”

His comments came as Auswide Bank’s chair Sandra Birkensleigh reiterated the pillars of the lender’s corporate plan for the coming years, which are:

• Focus on third-party and private banking for loan book and deposit acquisition.
• Actively pursue inorganic growth to improve our ability to scale or step-change our capacity.
• Provide exceptional customer experience across all channels to grow and ensure retention of customers.
• Invest to grow and keep the promise by ensuring growth is aligned with financial metrics for stakeholders.

Mr Barrett concluded by thanking the lender’s board and shareholders for their support during his time in the role and wished his successor Doug Snell “all the success for the future”.

Mr Barrett will retire at the end of the year, 31 December 2023.

[Related: Auswide Bank selects new leadership]