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Australia's leading banks recently moved to intensify their focus on proprietary mortgage channels as pressure on profitability continued to build. With the majority of new loans in the country now processed through brokers, the large lenders sought to reclaim margins that had been eroded by lower interest rates, rising operating expenses and heightened competition. Several banks indicated that direct, in-house lending produced stronger returns and deeper customer relationships. They also signalled a renewed push to hire additional frontline bankers as they attempted to curb their dependence on broker-originated home loans.
Australia's major banks recently stated that they were accelerating efforts to reduce their reliance on mortgage brokers in the nation's USD 1.6 trillion home loan market, as subdued interest rates, higher operating costs and fierce rivalry continued to apply pressure on their margins. Advertisement
UBS estimated that mortgage brokers were responsible for almost 80% of new home loans in Australia, a sharp rise from about 50% six years ago, making the country one of the most broker-dependent markets globally.
This renewed emphasis on in-house origination featured prominently when Westpac, National Australia Bank (NAB) and ANZ released their full-year results over the past fortnight. Each lender sought to strengthen its position in a market led by Commonwealth Bank of Australia (CBA), the most profitable among the Big Four and the only bank that originated the majority of its loans internally.
ANZ, NAB and Westpac stated that they intended to appoint more bankers to support their ambition of lifting their share of residential lending. NAB's chief executive, Andrew Irvine, indicated during an earnings call that the bank planned to continue enhancing the penetration of its proprietary home lending, which he said delivered returns 20% to 30% higher than broker-driven loans.
The growing focus on in-house mortgage activity emerged as the major banks continued to grapple with thinner profits driven by lower interest rates, intense competition, and an accumulation of litigation and restructuring costs. Net interest margins for the sector rose by only two basis points for the full year just concluded to 1.8%, although this was an improvement on the six-basis-point contraction recorded the year before amidst a period of aggressive refinancing.
Analysts forecast that margins would face further pressure, especially as interest rates were expected to remain lower in the near term.
In Australia, consumers often preferred working with mortgage brokers for rate comparisons and product evaluations. However, the associated commission payments reduced bank profitability. While broker penetration remained below the near 90% seen in the UK, it was still significantly above levels in Canada, France and Germany, where the proportion hovered between 40% and 45%.
Barry Trubridge, PwC's Australian financial services leader, observed that banks had increasingly been questioning the extent to which they should continue depending on brokers in an environment marked by higher costs and lower returns. He noted that banks viewed proprietary channels as a source of better margins and stronger long-term customer ties.
Home lending accounted for as much as 65% of the major banks' credit portfolios, based on regulatory data, and had taken on greater importance as the institutions scaled back their exposure to wealth management, financial advice and offshore portfolios. Retail banking presently contributed around 45% of total sector profits.
CBA maintained its position at the forefront of the market, reporting full-year cash earnings close to AUD 30 billion (USD 19.49 billion) earlier this week, a decline of 4.5% from the previous year as margins weakened across core lending areas. Analysts noted that, despite the drop, the sector's earnings still demonstrated the scale of the mortgage market's centrality to profitability.
The major banks expanded their mortgage books over the past year, with CBA leading at 6% growth to AUD 664.7 billion in its financial year ending at the end of June. NAB, Westpac and ANZ each recorded growth levels of around 5% in their financial years finishing at the end of September.
CBA also remained dominant in the proportion of loans written in-house, reducing broker-sourced loans to 32% from about 38% two years earlier. At NAB, reliance on brokers fell to about 59% from 65% over the same timeframe. However, Westpac and ANZ moved in the opposite direction, conceding further ground to brokers. Westpac saw the proportion of broker-written loans rise from 52% to 67.5% since 2023, while ANZ's share increased from 64% to 67%.
The shifts prompted questions from analysts at recent briefings. Westpac's Chief Executive, Anthony Miller, stated during an earnings call that the bank needed to recruit more bankers, acknowledging that the institution had lost too many home finance managers and was working to rebuild its proprietary capacity.
Source - Reuters
5th Jun, 2025
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