Westpac scrambles to keep pace in shifting market

Ann Sherry

Westpac Bank is scrambling to reverse falling New Zealand market share and slimmer home lending profits resulting from the entry of Kiwibank, the mortgage price war and the merger of ANZ and National banks.

A "significant structural shift in the New Zealand market" over the last two to three years had seen the bank's share of the consumer market fall by one per percentage point per year, Westpac New Zealand chief executive Ann Sherry told an analysts' briefing yesterday.

The bank was acquiring 8 per cent of the market each year, but it was losing 8.9 per cent. Westpac spokesman Mark Watts said the bank had a 21 per cent share of the New Zealand consumer banking market.

The bank had suffered a 29 basis point reduction in its home lending spreads because of the price competition in popular fixed-rate mortgages.

Spreads are the margin between the interest the bank earns on money it lends out and what it pays to fund those loans.

Most banks' overall spreads have been squeezed as mortgage borrowers move from floating-rate mortgages to fixed-rate loans which have narrower margins.

Fixed loans were 79 per cent of Westpac's mortgage book, up from 65 per cent 21 months ago.

"The impact has been significant but we are through the worst of that," Sherry said.

Westpac had experienced a lending spike this year as $2.5 billion worth of its 18-month fixed-rate mortgages matured. But it had retained about 95 per cent of that business.

The bank was now eyeing a $10 billion to $12 billion lending spike towards the end of the year as a rash of two-year fixed-rate loans - issued mostly by its competitors at the height of the mortgage war - matured.

Another major issue facing the bank was flat fee income as new entrants such as Kiwibank led the market to a no fee or a low fee environment. Customers were also shifting to competitors with cheaper offerings.

Sherry said some customers saw the bank as too expensive while others found its fee structure too complicated.

"We're undertaking a complete fee review to address these issues. We'll also be further aligning our pricing to market."

Despite a 12 per cent increase in customer satisfaction since 2002, Sherry said the bank needed to work harder to retain its customers. The bank had identified "attrition hotspots" - the 28 branches at which a third of the customer churn was taking place.

"We understand the retention problems in our consumer business and have implemented a plan to address them".

The bank's "intensive customer retention plan" had already been put in place in those branches and would go national in October.

The plan includes providing frontline staff with better customer information in order to increase sales opportunities and targeting at-risk customers with phonecalls.

In the crucial Auckland market, where the bank had maintained and even slightly increased its market share, it planned to increase its presence, opening three new branches this year and a further two each year in the future.

The initiatives were showing early signs of success in Auckland, with its share of new mortgages rising to 17 per cent in the last three months, up from 14 per cent before, Sherry said.