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Westpac Banking Corp competing aggressively

The competition amongst Australia’s banks is becoming more and more fierce as the lenders aim to attract new customers in light of the low interest rate environment. In fact, the competition has become so great that Westpac Banking Corp (ASX: WBC) has cut its interest rates on fixed home loans twice in just under a month.

After reducing its three-year fixed loan rates late in January, the bank announced a further 0.04 percentage point cut, as well as a 0.05 percentage point cut for its two-year fixed loan. The latest reductions, which will apply as of Tuesday 25 February, will take their two and three-year fixed rates to 4.84% and 5.09% respectively for customers eligible for package discounts.

In addition, data compiled by mortgage broker AFG last week revealed that Commonwealth Bank of Australia (ASX: CBA), Westpac, National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) were offering discounts of between 0.85% and 0.94% on variable loans. Macquarie Group Ltd (ASX: MQG) has even taken that a step further, offering a discount of 1.01% for loans between $500,000 and $750,000 in value.

Although home buyers are certainly benefiting from the aggressive discounting activity being undertaken by Australia’s largest banks, it is sure to raise flags in Canberra as the Federal Government prepares to undertake the largest review of the financial sector in 17 years, which it has dubbed the “Son of Wallis”. While the bigger banks can afford to compete with lower rates, Australia’s smaller banks, including Bendigo and Adelaide Bank Limited (ASX: BEN), struggle for growth and market share.

Foolish takeaway

It is pleasing to see Westpac addressing concerns that it may have been losing too much ground in the mortgage market as it maintained higher rates than its competitors. Although lowering its rates will impact margins, it is a necessity to ensure market share is not lost.

Out of the major banks, Westpac was the only one to not provide the market with a quarterly or half-yearly report in February.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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