The bank says that while housing lending volumes rose 13%, the mortgage price war sliced 25 basis points off its net interest margin. The main driver was a 15 basis point decline in housing spreads as the mix of fixed and floating lending shifted further towards fixed-rate loans.
Sherry says that 18 months ago about 62% of its mortgage book was lent at fixed rates but that has now risen to 79%. "That really explains the margin drop in our business," Sherry says.
Based on the registered banks’ quarterly general disclosure documents, Westpac’s share of the mortgage market has eased from 19.84% in December 2004, the quarter in which the Bank of New Zealand launched its "unbeatable" campaign, to 19.55% in December 2005.
Sherry said Westpac’s strategy in dealing with the price war has changed. To begin with, the bank had stood aside from it, partly because it hadn’t expect it to last as long as it has.
"That was a deliberate strategy at the time, but we really couldn’t afford to continue to do that because we were losing too much volume," she said. Now "we’re not letting anybody get too far away from us."
She expects margins will "stay pretty skinny" and thinks they may fall further in some areas. Banks in other markets, such as Britain, have experienced falling margins for a decade, she said.
