Sony Bank online mortgage lending could be profitable in Australia: Nomura

A Sony Bank online mortgage lending operation could be a profitable venture in Australia but does not pose an immediate threat to the market share of the major banks, according to analysts at Nomura.

This follows reports that Sony Bank has been granted permission by APRA to undertake a feasibility study into launching an offering in Australia.

Nomura analyst Victor German says Sony Bank's success in profitably offering mortgages in the Australian market “rests on its ability to fund growth using Australia dollar-denominated deposits in Japan”.

“At the current rate of around 2% (which Sony offers in Japan for Australian dollar one-year term deposits), Japanese banks can generate returns of around 50%, while with a 3.5% [Australian cash] rate, returns are lower but still remain attractive at around 20%,” says German.

German says a bank like Sony would pose a small risk to the major banks – “even if successful, we believe it will take some time for the Japanese banks to take market share”.

However, if Australian dollar-denominated deposits in Japan become a more popular product, German says Japanese banks “could provide a cheaper alternative in the Australian mortgage market, which may result in pricing and market share pressure”.

“This however, rests on both Japanese households and the regulator being comfortable with households taking on foreign exchange rate risk,” he says.

According to German, a more profitable option than raising deposits in Japan would be for the bank to purchase residential mortgage-backed securities (RMBS).

“We estimate that return on capital would be twice as high if banks buy RMBS instead of directly offering mortgages, predominantly due to more favourable capital treatment for AAA-rated paper,” says German.