In a research report released this week, Morningstar analyst Nathan Zaia said neobanks are unlikely to cause disruption in Australia’s banking sector, which remains dominated by CBA, Westpac, NAB and ANZ.
“Volt, 86 400, Up, Xinja and Judo are just some of the interestingly named banks attracting media attention as ‘disruptors’ of the Australian banking industry,” Mr Zaia said.
“It’s easy to get lured in by a new website, heavy marketing, discounts for new accounts and the promise of offering something different. But history has shown that it can be extremely difficult to build sufficient size to run a profitable and sustainable bank. »
The analyst said competition from non-bank and digital banks has had a limited effect on the banking landscape so far.
He said a number of neobanks, focused on digital offerings, are growing and while some are reporting high growth rates of their loan portfolios, they have only made a slight reduction in their market share.
Mr Zaia stressed that digital-only banking is nothing new in Australia, highlighting ING Bank Australia, which has held a banking license since 1994 and has amassed a total loan portfolio of $60 million and $47 million deposits. Morningstar said that without the balance sheet and technology to leverage technology spending, neobanks will struggle to be as disruptive as ING.
“There are significant risks to rival banks and fintech start-ups that we believe the market is underestimating,” Mr Zaia said.
“Continued loan growth often comes at the expense of credit quality, and in a downturn, dramatic growth can quickly give way to an increase in bad debt,” he said, emphasizing many examples of boom and bust in Australia.
CBA acquired Bankwest in 2008 after its then British parent company, HBOS, encountered financial difficulties during the GFC. Mr Zaia said the bank had suffered large writedowns after a period of rapid expansion and had taken on high-risk loans that other lenders did not want.
“Westpac’s acquisition of RAMS Home Loans follows another notable industry failure,” the analyst said.
“In 2007, RAMS Home Loans’ business model of lending to low-income people using cheap debt in the United States collapsed when credit markets froze and it did not not been able to deploy $5 billion of commercial paper. »
Mr Zaia added that the focus on low growth over credit quality also surprised regional bank Suncorp, which needed a capital raise after suffering large property writedowns. business and commercial.
