Australian Banking Sector Faces Dual Challenges: Slower Mortgage Growth and Intensifying Deposit Competition

The Australian banking sector is currently navigating two distinct but interconnected challenges: slower mortgage growth following federal tax policy changes, and intensifying competition in the deposit market. These developments carry implications for bank profitability, housing credit, and consumer savings returns.

Mortgage Market: Policy Changes and Credit Growth

Government Tax Reforms

The federal government has announced changes to negative gearing and capital gains tax concessions, marking the most significant alteration to property tax policy in 25 years. The reforms are designed to reduce incentives for housing investment.

Analysts at Macquarie project that total housing credit growth could slow from approximately 7% to 5% as a result of the policy changes.

Commonwealth Bank of Australia (CBA) and Westpac are expected to be most affected, given the size of their mortgage portfolios.

Bank Performance and Share Prices

Australian major banks' share prices have underperformed in 2026. Following the federal budget, CBA experienced a 10.4% decline in share price.

Additional Pressures on Banks

Banks face several other headwinds in the mortgage sector:

• Increased competition from Macquarie Group.
• Rising forecasts for bad debts, attributed to economic weakness.
• Potential margin pressure as lending shifts toward owner-occupier loans, which may intensify competition in that segment. UBS analysts note that investor loans carry higher interest rates and anticipate a slight narrowing in net interest margins as investor lending cools.

Deposit Market: Increased Competition

Market Size and Structure

Australian households collectively hold $1.7 trillion in deposits. Historically, banks have attracted deposits through "bonus" or "reward" accounts that often require conditions such as monthly balance growth or restrictions on withdrawals.

A 2023 competition watchdog report found that more than two-thirds of customers with "bonus" interest accounts did not receive the bonus interest. Base interest rates on such accounts from major banks have ranged from 0.01 percent to 0.25 percent.

Macquarie Group's Market Position

Macquarie Group has adopted an alternative approach by offering competitive interest rates without complex terms and conditions. Since 2020, Macquarie's market share in deposits has grown from 3.1 percent to 6.3 percent. Macquarie states that major Australian banks hold approximately $285 billion in zero-interest deposits.

Regulatory Perspective

Reserve Bank of Australia (RBA) Governor Michele Bullock has encouraged savers to compare deposit rates in a manner similar to borrowers comparing mortgage rates. Bullock noted that customer inactivity often results in less favorable outcomes for deposit holders, and that active comparison by customers is important for securing better terms.

Industry Outlook

Analysts view Macquarie's expansion in the deposit market as a long-term competitive challenge to major bank profitability. The ongoing competition is expected to continue reshaping the Australian banking sector, with potential benefits for consumers who actively seek higher interest rates. Residential mortgages constitute roughly two-thirds of Australian banks' domestic lending.