Westpac declares more work to be done in the mortgage market

Westpac will increase its efforts to win mortgage customers.

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Westpac Banking Corp (ASX: WBC) has declared there is more work to be done to win over more mortgage customers, but it is unlikely to come in the form of lowering interest rates.

Although the bank has caught up with rivals in recent months, growth in its home lending division has still lagged the average pace of the industry. Analysts have long held that Westpac, which is Australia's second largest bank behind Commonwealth Bank of Australia (ASX: CBA), will need to lower its variable mortgage rates to compete with its major rivals in gaining more customers. Its standard variable rate is currently 5.98% compared to CBA's which is 5.9%, or the 5.88% upheld by both Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).

While Westpac will certainly increase its efforts to win over more customers, the bank's Australian boss said it would not come at the expense of profit margins and that it would not "bribe" customers with cheaper headline mortgage rates as it would be unsustainable to its business model.

While pricing is certainly one of the major factors behind a customer's decision regarding which bank to deal with, Hartzer believes that improvements in service and technology are also winning elements. On Friday, the bank announced that measures taken over the last 12 or so months to lift productivity and improve services have added around $140 million in incremental earnings. A new mobile app will also be rolled out this month which will help to significantly boost revenue per customer.

Foolish takeaway

Despite achieving a record combined profit of over $27 billion last year, there is still more profit to be made as interest rates and bad debts remain low. The problem is this is already reflected in their share prices. Although the shares might continue to climb in the short-term, they are unlikely to beat the market's returns in the long-run.

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

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