Strong growth in deposits and mortgages are said to have justified the revival of Bank of Melbourne, writes Clancy Yeates.
In mid-2011, when the eurozone debt crisis was slowly but surely sapping global confidence, Westpac did something counter-intuitive.
It made an aggressive move to spend millions of dollars expanding its retail banking share in the challenged Victorian economy by reviving the Bank of Melbourne brand.
Since then, credit growth has been stubbornly weak and banks have shed thousands of jobs. But the revival of Bank of Melbourne, controversially dumped by Westpac in 2004, continues apace.
Almost two years since the launch, it has 72 branches - up from the 40 branches it previously operated as St George in Victoria. Now it has close to 100,000 customers and nearly 1000 staff.
Despite the tough environment for expanding a retail bank, chief executive Scott Tanner is confident the strategy is achieving its goal - to help NSW-heavy Westpac expand its footprint in Victoria.
Its share of mortgages and deposits in the state has grown by 1.5 percentage points, he says, and it is on track to reach its ultimate target of gathering a 10 to 15 per cent share. "I'd always like a stronger growth environment but we have what we have," Tanner says. "Our deposits are growing at five times market, our mortgages are growing at three times market."
Among analysts, however, there is still debate about the wisdom of "multi-brand" strategies.
The approach is far from unique - Commonwealth Bank has retained Bankwest while NAB has its online-only UBank. The idea is that each brand can pursue different customer segments without "cannibalising" the group's existing customer base.
But sceptics are unconvinced that brands are what really sell straight-forward financial products like home loans and credit cards.
A Nomura survey of 500 customers from last September found interest rates and fees were the main reasons for changing banks, not brands. Brian Johnson from CLSA describes multi-branding as a "slightly negative point of differentiation" for Westpac, which also owns St George, RAMS and BankSA - but says there it not enough financial information available to say if it has been successful.
But Tanner says the experience of Bank of Melbourne shows multi-branding is working. Its deposit base has expanded by about $1 billion every six months and its mortgage book is growing much faster than total home loans in the economy. He says it is making a healthy profit.
"More than 85 per cent of our deposit balances over the last two years have come from customers who had no prior relationship with the group, so we're actually growing our market share. Customers are coming from everywhere."
Bank of Melbourne has adopted an unashamedly local approach, targeting customers who might otherwise bank with a credit union or regional lender.
Leaked 2010 Westpac board papers on the Bank of Melbourne launch controversially described the Victorian market as "provincial", but Tanner says this is irrelevant and the bank's expansion speaks for itself.
For investors, however, it is difficult to judge the rollout without considering cost. The bank has not revealed how much it is spending on the initiative - it has been estimated the price tag could be up to $500 million over five years.
Tanner says costs are being monitored closely and the bank is making a "fantastic" return on the new branches it is opening.
He says the lukewarm domestic economy - which has hit Victoria's manufacturing, tourism and education industries especially hard - has aided the expansion in some ways.
"If I was going to reflect a little, I'd say that these are in fact the best times to change our market position. We're seeing better retail sites than perhaps we would have seen in a different environment. We're seeing more people and arguably better people than what we would have seen in a different environment."