Are mortgage wars heating up?
A distinct theme emerged from the financial results of four of Australia’s five largest banks last week.
While Westpac, NAB, ANZ and Macquarie’s Australian retail segment reported continued growth in lending volumes and deposit inflows, especially in the owner-occupier segment, they also reported tighter net interest margins (NIMs), signalling an increasingly competitive mortgage landscape.
Westpac’s first-half results saw its NIM drop by three basis points to 1.8% despite a 2% lift in home loan deposit growth. NAB’s first-half margin dipped by the same amount, settling at 1.7%.
ANZ, meanwhile, experienced a broader six-basis-point contraction across the banking segment in its first half, with its Australian Retail division’s margin falling 10 basis points to 1.84%.
Macquarie’s Australian operations also acknowledged margin compression driven by intense lending and deposit competition.
All banks’ results pointed to one key factor – unrelenting pressure in the home loan market, fuelled in part by February’s Reserve Bank rate cut, which encouraged pricing competition across the sector.
With households shopping aggressively for better deals and banks battling to preserve market share, margins have thinned despite rising volumes.
Macquarie, for instance, grew its Australian home loan book by 19% to $141.7 billion and deposits by 21%, but acknowledged that NIMs were weighed down by portfolio mix shifts and competitive dynamics.
Non-performing loans on the rise
While margin contraction was expected, the rise in bad credit across the board speaks of a deeper concern.
NAB, for instance, reported a sharp 29.6% increase in non-performing exposures to $11.26 billion. Mortgage arrears contributed significantly to this spike, raising concerns about pockets of distress in the home loan sector.
ANZ flagged similar trends, with rising non-performing loans in both its Australia Retail and New Zealand operations, driven by an uptick in 90+ day delinquencies.
ANZ linked the increase to “defaults on well-secured mortgages”, while also absorbing the credit risk profile of Suncorp Bank, which it acquired in 2024. Across its banking operations, ANZ said impairments were increasing in part due to inflation pressures on borrowers and higher net funding costs.
Even Macquarie, which maintains a relatively conservative loan portfolio, took a $45 million impairment hit in its Australian operations. This increase was attributed to changes in recovery expectations for its car loan book and broader macroeconomic deterioration.
Reality check
Taken at face value, the rise in non-performing loans could be a red flag, although “if you look at the aggregate, it still looks pretty low”, Bank of Queensland chief economist Peter Munckton said in a chat with MPA.
He recalled the state of post-COVID panic as interest rates began to ratchet up, raising the prospect of swathes of borrowers becoming unable to service their loans.
But that never eventuated, despite a period where unemployment has increased, interest rates have increased and borrowers have come off fixed-rates loans to higher variable loans.
Regulatory principles like the 3% serviceability buffer have undoubtedly played a part in keeping defaults as low as possible.
Put into this context, the recent uptick in non-performing loans could have been substantially worse.
Diverging segment performance
While home loans struggled due to pricing competition, several business segments helped cushion the impact.
Westpac’s business lending rose 5%, outperforming the retail side, with strong growth in agriculture, health, and professional services.
ANZ’s Institutional division remained the crown jewel of the group, maintaining a steady margin of 0.76% – despite wider headwinds in the retail and commercial segments.
Suncorp Bank, now part of ANZ’s group structure, posted a solid NIM of 2.12%, while Macquarie’s business banking loan volumes increased 6%, contributing to the group’s 5% rise in overall profit.
The lesson here is that diversified lending portfolios and non-retail segments continue to act as shock absorbers in a tough lending market.
Resilience, but with caveats
Despite the narrowing margins and higher credit risks, the banks struck a tone of cautious optimism.
Westpac chief executive Anthony Miller said the bank was “growing in the areas we’re targeting” and praised staff for rallying around key priorities.
NAB boss Andrew Irvine echoed the sentiment, noting that the bank was “well placed to manage our business for the long term”.
ANZ’s outgoing chief executive Shayne Elliott acknowledged the uncertain global outlook, stressing that a strong balance sheet – particularly in terms of liquidity and provisions – was critical.
Meanwhile, Macquarie chief executive Shemara Wikramanayake described the group’s result as “resilient”, pointing to opportunities created by falling interest rates and technological disruption. However, Chair Glenn Stevens warned of global volatility driven by geopolitical unpredictability, including US President Donald Trump’s reintroduction of protectionist tariffs.
The prevailing themes from this earnings season – squeezed margins, intensified mortgage competition, and rising credit stress – suggest 2025 will be another year of strategic juggling.
