Concentration of Banks: Big four turn into two

The Australian Competition and Consumer Commission's boss Graeme Samuel has issued a warning about growing concentration of power among our largest banks. He further stated that the ACCC was not very happy about the merger of the Commonwealth Bank and BankWest and Westpac and St. George.

The Australian has obtained an exclusive report that has shown that while all four banks have expanded their mortgage books in the March quarter, Australia's two biggest merged banking groups Commonwealth Bank/BankWest and Westpac/St.George Bank took a combined 85 per cent of the Big Four Mortgage growth during the period.

This revelation comes after a review was conducted by Brandmanagement - a market research firm specialising in the finance sector.

The report further revealed that $22.7 billion of the $26.6 billion growth in mortgage books by the Big Four banks in the March quarter was achieved by Commonwealth Bank/BankWest ($15 billion growth) and Westpac/St George ($7.7 billion).

CommBank alone took 56 per cent share of total Big Four mortgage book growth during the quarter, with CommBank and BankWest each recording substantial rates of organic mortgage growth.

ACCC boss Graeme Samuel admitted that the approval the Commission had given to the merger between Commbank and BankWest was not one that they had been very happy about.

The merger was approved by Mr. Samuel in October last year, on the advice given from the Reserve Bank and the Australian Prudential Regulation Authority; this was during the height of the International liquidity crisis.

Mr. Samuel further hinted that before any similar mergers of the Big Four, and non-bank financial institutions and regional banks, would take place they would be examined very rigorously and with intense scrutiny.

ANZ and NAB also recorded mortgage book growth for the quarter, but their combined share of the March quarter increase for the Big Four was less than 15 per cent.

Statistics also revealed the dominance of the Big Four in the broader banking sector. They now hold 72 per cent of all outstanding mortgages by value, worth $730 billion compared to 57.5 per cent of all mortgages, worth $539 billion last year.

Andrew Inwood principal of Brandmanagement stated that the figures clearly showed that mergers and the 'flight to brand' during the economic crisis had boosted the big two, and CommBank particularly in the mortgage area and that money had been flowing to the Commonwealth at an extraordinary rate.

Mr. Samuel was worried about the growing dominance of the Big Four over the rest of the banking sector and was increasingly concerned about the potential for a less than intensely competitive structure developing amongst the banks and the non-bank financial institutions as we emerge from the global financial crisis.

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Published on May 5-th, 2009 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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