CBA cut interest rates by as much as 0.30% across its savings accounts yesterday, exemplifying the tactics many banks are using to help recoup the costs incurred from reducing home loan rates by the full 0.25% March cash rate reduction. Via Australian Broker.
Two weeks before the major’s home loan
reductions come into effect, the ongoing bonus rates on its Goal Saver
account have been reduced by 0.25%, its pensioner security account by up
to 0.25% and its Youth Saver account by 0.30%; the NetBank Saver
account was unchanged, with an ongoing rate of just 0.10%
“CBA is one of six banks so far to cut
deposit rates since last week’s cash rate cut, with dozens more expected
to follow,” said RateCity.com.au research director Sally Tindall.
“It’ll be interesting to see how far
Westpac, NAB and ANZ shave their rates, seeing as they’ve already taken
the knife to some of their savings rates this year.
“In this low rate environment, finding a
savings rates above inflation can feel like finding a needle in a
haystack, but they are out there.”
The highest rate currently on offer is 2.25%, which can be found at neobanks 86 400 and Xinja Bank.
However, they’re “unlikely to stick around”, according to Tindall.
Last week, Xinja announced no new Stash
savings accounts will be able to be opened for an indefinite period, in
order to take care of existing customers.
For now, the neobank will maintain its
2.25% rate, with no strings attached and interest paid from the first
dollar up to $245,000, calculated daily and paid monthly.
“When faced with higher than expected deposit flows, and an RBA
rate cut, most banks would just drop deposit interest rates, hurting
existing customers while chasing new ones. That’s not what Xinja is
about,” said CEO and founder, Eric Wilson.
“Xinja offers a different way of banking, and that extends beyond technology to how we treat our customers.”
However, Wilson did reiterate the Stash account has a variable rate which may go up or down in the future.
“Right now, in what are turbulent times, we want to stand by the rate we have offered,” he said.
“But there are three things we have to
balance: the RBA rate cut makes it more expensive for Xinja to hold
deposits at the same rate before the launch of our lending program;
there has been an unprecedented uptake of Xinja Bank by Australians; and
now, how we – as a new bank – manage the costs of those deposits. “
Despite the recent influx of positive reporting on the trajectory of the housing market, there remains “a fundamental, structural problem” with the price of property in Australia, according to financial analyst Martin North. Via Australian Broker.
While the rising home values evidenced
from mid-2019 have been largely celebrated as an overtly positive trend,
North has his doubts.
“It’s not sensible to hope and assume
prices will continue to go ever higher. House prices are very high
relative to income. Actually, very high relative to any other measure
you can name, like GDP,” he said.
A recently-released Demographia survey
showed Australia has some of the most unaffordable property in the
world. While Hong King and Vancouver claimed the top two spots on the
list, Sydney and Melbourne came right after.
“Further, we’ve got too much debt in our
system, which is supported by debt that’s difficult to repay, even at
low interest rates,” said North.
“There is definitely a cap, in my view, on how much home price growth we should expect and will see.”
The affordability concerns which have
dominated Australia for years were again thrown into sharp relief by
recent figures around hopeful market entrants.
“The latest data shows the first home
buyer average loan is now $408,000 across Australia – the highest it’s
ever been,” said North.
“That’s massive for a first-time buyer
trying to get into the market. Think about the income multiples that
figure represents; that’s maybe eight, nine, 10 times what many people
make.
“It’s an unsustainable position to be in.
We can’t allow home prices to continue to run away. It will create a
bigger problem for us later.”
It’s important to focus on the hard data amidst the sea of vested parties doubling down on their own rhetoric, North said.
“The banks want property prices to go
higher because if they go lower, they have much more risk in their
system and on their books than they want to admit,” he explained.
“The Reserve Bank and Treasury both want
prices to rise to create the wealth effect. If people feel more wealthy,
which they generally do as prices rise, they go and spend more. Trying
to bring prices higher is really the only lever they’ve got.”
However, according to North, it’s “failed
policy” to bank the future of the economy on “ever-inflated house
prices” with nothing else to support it.
“I come back to the fundamental reality of the ratio between debt and income, the ratio between debt and GDP,” he said.
“We’re in an unsustainable position. We’re
betting the farm on the property sector and, in my view, it’s going to
fall over at some point; it’s just a question of how soon.”
The government has released the draft legislation implementing 22 recommendations and two additional commitments which arose from the Hayne Royal Commission, including recommendations 1.6 and 2.7 which establish a compulsory scheme for checking references for prospective financial advisors and mortgage brokers. Via Australian Broker.
Before the royal commission began, under
ASIC’s Regulatory Guide 104, both Australian financial services
licensees and Australian credit licensees were meant to undertake
appropriate background checks before appointing new representatives,
through referee reports, searches of ASIC’s register of banned and
disqualified persons or police checks.
However, despite this requirement’s existence, the royal commission found financial services licensees weren’t doing enough to communicate the backgrounds of prospective employees among themselves, highlighting that licensees “frequently fail to respond adequately to requests for references regarding their previous employees” and that they do not “always take the information they receive seriously enough”.
As such, financial advisers facing
disciplinary action from an employer were able to simply leave and find
another to employ them.
Recommendation 1.6 and 2.7 seek to address this systemic weakness.
The latter looks to promote better
information sharing about the performance history of financial advisers,
focusing on compliance, risk management and advice quality, while the
former made sure this change is extended to mortgage brokers as well.
According to the draft legislation, the
reporting obligation “targets misconduct by and serious compliance
concerns about individual mortgage brokers” and “recognises that in the
industry, other parties such as lenders and aggregators are often well
positioned to identify this misconduct”.
Obligation to undertake reference checking and information sharing
New law: Both Australian financial
services licensees and Australian credit licensees are subject to a
specific obligation to undertake reference checking and information
sharing regarding a former, current or prospective employee.
Current law: Australian financial services
licensees are subject to general obligations, including taking
reasonable steps to ensure its representatives comply with the financial
services laws and credit legislation.
Civil penalty for failure to undertake reference checking and information sharing
New law: Australian financial services
licensees and credit licensees who fail to undertake reference checking
and information sharing regarding a prospective employee are subject to a
civil penalty.
Current law: No equivalent.
The proposed legislation will be in
consultation until 28 February, with interested parties invited to make a
submission before the deadline.
Westpac has announced that for one year, it will cover the mortgage repayments of home loan customers who lost their principal place of residence due to the bushfires raging across the country, paying up to $1,200 per month per customer. Via Australian Broker.
Westpac’s Bushfire Recovery Support
Package also includes interest free home loans to cover the gap between
insurance payouts and construction costs for consumers who need to
rebuild, as well as $3m in funds allocated to bushfire emergency cash
grants, of which eligible retail customers can claim up to $2,000.
At the time of writing, the bushfires have
claimed the lives of 28 people across the country, with over 3,000
homes destroyed or damaged in New South Wales alone.
“These initiatives are designed to provide
practical, on the ground support for our customers, our people and for
those who are caring for affected communities,” said Peter King,
Westpac’s acting CEO.
The relief package also makes grants of up
to $15,000 available to assist small businesses with the cost of
refurbishing premises that have been damaged or destroyed during the
bushfires.
Westpac has committed to “fast tracked”
credit approvals to provide short-term assistance to businesses impacted
by the fires, as well as offering 2.83% three-year variable rate,
low-interest rebuilding loans.
Further, no foreclosures will be made for
three years on any farming businesses in the affected areas, and all
volunteer firefighters across the nation are able to access the Disaster
Relief Package.
FBAA managing director Peter White has
encouraged brokers to be aware that it’s not only clients who have lost
their properties that are unable to meet their mortgage repayments;
while that subsection may be the most likely to automatically speak to
their lenders and insurers, there are many others whose properties were
not touched by fire but have been impacted in other ways.
“There will be those who have had to
evacuate, or who may operate a small business that has seen a dramatic
drop in revenue because an area has been blocked off. There will be
others who have had to sacrifice their earnings to help friends, family
or their community,” White said.
“Lenders are currently allowing people to
momentarily stop their repayments, and while each situation is
different, they are listening and helping and working with all
borrowers.”
According to White, brokers are ideally positioned to have the most impact on and support damaged communities.
“Chances are the bank won’t come knocking
on our clients’ doors because they don’t know who is being impacted and
who isn’t, but we can knock on those doors,” he said.
“Finance brokers are part of local
communities and we know many of our clients and their families
personally, so this is a great opportunity for us to serve our clients
and repay the trust they have in us.”
The bushfires raging across Australia are likely to lead to elevated mortgage arrears in the coming months and, if weather-related “peril events” continue to become a more regular occurrence, they could reshape the standard arrears fluctuations expected throughout the year, according to a new report from S&P Global Ratings, via Australian Broker.
“Mortgage arrears typically increase
during the summer period, reflecting the pre- and post-Christmas
spending and extended holiday season, before declining during the second
quarter,” the report reads.
“If the longevity and intensity of
bushfire seasons become a more regular occurrence, arrears could remain
elevated for longer periods in drought-prone areas due to the flow-on
effect of bushfire devastation on local employment conditions.”
Local employment conditions such as
tourism and agriculture are expected to be impacted, causing
debt-serviceability pressures for affected borrowers.
This dynamic will be further compounded in
areas with drought conditions, or where agriculture forms a large part
of local employment, with arrears predicted to remain elevated for an
even longer period of time.
Lenders to borrowers in affected areas
will likely experience an increase in financial hardship claims, which
they are obliged to consider under consumer laws and banking codes.
Possible concessions can include a reduction in the interest rate or
payment, lengthening of loan maturity, or full or partial deferral of
interest for a temporary period.
Comprehensive credit reporting will soon leave unprepared finance providers with unprofitable business models while it spurs those ahead of the curve to further success, says credit and risk consultant Andrew Tierney, via AustralianBroker.
The news that most consumers can now
benefit from comprehensive credit reporting should come as a wake-up
call to finance providers who have yet to embrace the digital era.
All four major banks are now providing
credit bureaux with detailed customer transaction data relating to
credit card usage, personal loans, mortgages and other financial
commitments.
CCR is poised to reshape our industry.
‘Game changer’ may be an overused phrase – but in this case it’s
accurate. For this reason, it surprises me that there are a large number
of credit providers still stuck in the analogue era, who show no signs
of wanting to change. They aren’t benefiting from CCR and don’t seem to
want to.
For example, while talking to a subprime
lender just last week about what he was doing to meet this new
challenge, he said his company already treated all applicants as
subprime, with an interest rate that reflected the level of risk. He
didn’t need transaction data direct from the applicant’s current account
to help him make a decision, so why fix something that had been
generating profits for as long as he could remember?
I can’t imagine how those with this
mindset, determined to carry on as they have done, will still be in
business in 10, maybe even five years’ time.
While many don’t see it at first, there’s
eventually a light-bulb moment that arrives once you spell out how CCR
is going to impact their business.
For the lender I mentioned, all it took
was me pointing out that legislation requires lenders to use all the
tools available to understand the risk a loan presents to the client.
Without tapping into CCR, is he really doing this?
What defence will he have for not
utilising CCR when the regulator comes knocking on his door? Cost isn’t a
factor. There is no need for any major investment in back-office
infrastructure or IT when you can tap into CCR and open data at little
cost via platforms provided by tech companies.
Was he prepared for legal action that he could face, as a result of not fully checking affordability?
Further, there is the risk exposure that
comes from not knowing the size that your liability could be in the
future. As we all know, the regulator has been moving the due diligence
goalposts for us.
By the end of our talk, the time
investment he was willing to devote to this had grown exponentially.
Now, he is days away from taking full advantage of CCR.
However, CCR should not be viewed simply as a big stick when it poses many more business benefits.
As recently calculated by Kevin James at
Equifax, $20bn in extra loans could be granted to consumers over just
one year by giving lenders granular detail on customers’ debt and
repayment habits. The real-time transaction history at the point of
application gives lenders the data needed to allow loans that previously
would have been turned down.
Suddenly, a slice of business that
used consultantto be a ‘no’ could become a ‘maybe’, then a ‘yes’.
Because this decision will be largely automated, it will be possible to
use true risk-based pricing for the first time, with loan terms designed
specifically for a borrower.
Those that lag in this business are undoubtedly going to be left behind.
It won’t be long before they see a change
in demographic in their pipeline. The profile of hopeful borrowers they
are used to dealing with will change, as previous ‘nos’ find they can go
to more mainstream sources and become ‘yeses’. Why would borrowers be
willing to pay a higher rate of interest when they can get a lower one
that is specifically tailored to their situation?
Finance providers who stubbornly remain
behind the times may also find the likely ‘nos’ will begin to target
firms that do not use CCR or open data, because they know their
transaction data will not stand up to the same level of scrutiny and
they are more likely to sneak by to approval.
Those who do not embrace these changes are
going to have the rug pulled out from underneath them in the
not-too-distant future. Their business model that has always been
profitable could lose its edge overnight.
If doubt remains, remember that none of us
need to think very hard to come up with examples of analogue businesses
that have long been left behind.
The 2019 Consumer Pulse Report from financial comparison site Canstar surveyed over 2,000 Australians to get insight into current trends and how they’re likely to play out into the future. Via Australian Broker.
According to the data, less Australians
are worried about mortgage interest rate movements than in years
previous. Just 7% named it as their biggest financial concern for the
year ahead in 2019 as compared to 9% last year.
However, concern over debt as a whole has
risen, with 7% naming mounting debt levels as their leading concern for
the year ahead as compared to 5% in 2018.
Just over a quarter (26%) of Australians
reported they spend more than they earn, don’t save regularly and don’t
limit their debts. The average debt outside of property loans rests at
$48,809.
The respondents communicated credit cards
are their biggest downfall, giving way to “accidental debt” through
spending rather than the considered decision of taking out a loan and,
without the discipline of a fixed repayment plan, it tends to linger
longer.
Of those surveyed, 67% said their debt is
in the form of a credit card, 17% a car loan, 16% a personal loan, 10%
buy now pay later, and 20% other.
Nearly half (43%) of those with debt say they think about it on a daily basis.
Nearly a quarter (24%) doesn’t have any
savings at all – the same percentage as in 2018, showing a lack of
improvement in savings habits. Of those not saving, close to three
quarters (74%) indicated they live pay cheque to pay cheque.
Younger generations continue to live at
home longer while they save for their financial goals, be it a holiday, a
car or a home, with respondents saying adult children should move out
by the age of 34.
Home loan repayments as a percentage of
the average income are now at a similar level as they were before the
Global Financial Crisis (GFC); however, the RBA cash rate is
approximately one-tenth of the pre-GFC cash rate, meaning repayments
have been reduced.
Canstar expects worry to intensify when interest rates start to rise, and says now is the time to be getting a good deal.
AUSTRAC, Australia’s anti money-laundering and terrorism financing regulator, has taken Westpac to court, alleging the major bank violated anti-money laundering and terrorism regulation on over 23 million occasions. Via Australian Broker.
According to AUSTRAC CEO Nicole Rose, the decision to commence civil
penalty proceedings came on the back of a detailed investigation into
Westpac’s non-compliance.
The regulator has alleged Westpac’s oversight of its program intended
to identify, mitigate and manage money laundering and terrorism
financing risks was deficient.
AUSTRAC has found the failures led to “serious and systemic non-compliance” with the AML/CTF Act.
“These AML/CTF laws are in place to protect Australia’s financial
system, businesses and the community from criminal exploitation. Serious
and systemic non-compliance leaves our financial system open to being
exploited by criminals,” said Rose.
“The failure to pass on information about IFTIs to AUSTRAC undermines
the integrity of Australia’s financial system and hinders AUSTRAC’s
ability to track down the origins of financial transactions, when
required to support police investigations.”
Westpac allegedly failed to:
Appropriately assess and monitor the ongoing money laundering and
terrorism financing risks associated with the movement of money into and
out of Australia through correspondent banking relationships
Report over 19.5m International Funds Transfer Instructions to
AUSTRAC over nearly five years for transfers both into and out of
Australia
Pass on information about the source of funds to other banks in the
transfer chain, depriving them of information needed to manage their
own AML/CTF risks
Keep records relating to the origin of some of these international funds transfers
Carry out appropriate customer due diligence on transactions to the
Philippines and South East Asia that have known financial indicators
relating to potential child exploitation risks
AUSTRAC aims to build resilience in the financial system and ensure
the financial services sector understands, and is able to meet,
compliance and reporting obligations.
“We have been, and will continue to work with Westpac during these
proceedings to strengthen their AML/CTF processes and frameworks,” Rose
said.
“Westpac disclosed issues with its IFTI reporting, has cooperated
with AUSTRAC’s investigation and has commenced the process of uplifting
its AML/CTF controls.”
Westpac is a member of the Fintel Alliance, a private-public
partnership established by AUSTRAC to tackle serious financial crime,
including money laundering and terrorism financing.
Yesterday, the government announced the ACCC will be conducting an inquiry into home loan pricing, investigating how lenders set their rates, why they often fail to pass through RBA rate cuts to borrowers in full, and the barriers that may be preventing consumers from switching to cheaper options on the market. Via AustralianBroker.
Over the course of the day, key industry players publicly responded
to the news, some welcoming the development, while the major banks
seemed to imply the key concerns listed were a matter of
miscommunication rather than misbehaviour.
FBAA
The Finance Brokers Association of Australia (FBAA) welcomed the announcement of an inquiry, with managing director Peter White dubbing the examination of the banking sector “appropriate.”
“I’ve been calling on the banks for a long time to pass on interest rate cuts in full,” White said.
“The banks have been playing some sort of seesaw game where they will
pass on a little bit this time and then a bit more – or a bit less –
the next time.
“There’s a pattern of behaviour here that Australians are clearly not happy with.”
White rejected the banks’ claims the partial rate pass throughs have been due to increasing costs.
“The banks are being hit with penalties for breaches uncovered through the royal commission, and through investigations by the Banking Executive Accountability Regime (BEAR).
“Trying to balance the books by passing on these penalties is not something that should be borne by borrowers.
“This inquiry provides an opportunity for banks to be transparent
around their decision making and how they balance the needs of the
community.”
COBA
The Customer Owned Banking Association (COBA) also welcomed news of
the inquiry, particularly singling out the investigation into what
prevents more consumers from switching banks when they may find a better
deal elsewhere.
Further, the association expressed optimism the inquiry with generate “creative new ways to unleash consumer power.”
“Empowering consumers to switch their banking and to shop around is
an unambiguously good thing,” said COBA director of strategy Sally
Mackenzie.
“A more competitive market will make all players care more about
their customers, and the market will function more effectively if there
is more intense competition for borrowers.
According to Mackenzie, it’s up to the policymakers to enable consumers to drive this market-wide competition.
ANZ
In its response, ANZ asserted the issues raised in the ACCC inquiry
launch stem from a shared misperception held among consumers.
“Despite intense competition, there is cynicism in the broader
community about interest rates for home loans,” said ANZ CEO Shayne
Elliott.
“We know we have not done a good job in explaining our position and
we will be working hard to ensure this process delivers results.
“The inquiry is a good opportunity to provide facts in what is a
complex space and we hope it will provide the public with renewed
confidence in the way their home loans are priced.”
Westpac
Westpac took a similar stance to ANZ, but went yet further, directly
defending its prioritisation of protecting its margins and making a
reasonable profit.
“The inquiry is an important opportunity to put the facts on the
table around mortgage pricing,” said Westpac Group CEO Brian Hartzer.
“Pricing decisions require banks to take into account a number of
factors, particularly as the cash rate heads towards zero. In particular
we have to manage the net interest margin – that is the difference
between deposit and lending rates. As part of this process we take into
account the interest of borrowers, depositors and shareholders who
provide the equity that enables us to operate.
“Banks also need to make a reasonable level of return. This not only
supports shareholder investment it also underpins prudential stability,
and our debt rating. The level of profit also needs to be considered in
relation to the size of our balance sheet which is $850bn. In fact our
profitability in terms of ROE has more than halved over the last 15
years.
“Westpac must also retain its double AA rating. This rating allows
the bank to import funding at more reasonable cost from international
investors. To lose it would increase the cost of our wholesale funding
which would inevitably lead to higher interest rates for our borrowers.”
NAB
NAB acknowledged the launch, but did so in a noncommittal manner.
Chief customer officer for consumer banking, Mike Baird said, “This
is an important opportunity to discuss the challenges of an increasingly
low interest rate environment and engage in a broader discussion about
how we support all our customers – both depositors and borrowers.”
The commentary did not extend further, aside from a list of “fast
facts” tagged onto the end, including that NAB currently has the lowest
Standard Variable Rate of the majors, has gotten rid of over 100 fees
from its products and services, and offers a special fixed rate of 2.88%
for two years for first home owners – seeming to imply the bank has
already done a great deal in making itself more hospitable for
customers.
A new trend has emerged in the SME lending space, with Australian small businesses more likely to use a non-bank to fund growth rather than their main bank, according to a national survey, via Australian Broker.
Small business owners’ reliance on non-banks is the highest it’s ever been, with 18.7% of SMEs planning to fund revenue growth with such a lender, as charted in the September 2019 SME Growth Index commissioned by Scottish Pacific and drawing data from over 1,000 businesses.
Conversely, business owners planning to fund their growth via their
main bank has halved, dropping from 38% in the first year of reporting
in 2014 to 18.3% in the most recent data.
The main reason given for turning away from banks, cited by 21.3% of the SMEs, was avoiding having to use property as security against new or refinanced loans, up from 18.7% in September 2018.
Other considerations contributing to the gravitation towards
non-banks included reduced compliance paperwork (19.8%), short
application times (17.1%), royal commission disclosures (8.8%) and
banks’ credit appetite (6.9%).
Of the SME owners relying on non-bank funding, 77% utilise invoice
finance, 23% merchant cash advances, 10% peer to peer lending, 9%
crowdfunding and 5% other online lending.
Just 2.6% of those surveyed indicated they would not consider using a non-bank lender – down from 4.0% last year.
“[However], the SME sector still has a long way to go in taking
advantage of the alternatives available to them,” said Peter Langham,
Scottish Pacific CEO.
“Some business owners remain unaware of funding alternatives. [They]
are aware of non-bank funding, but don’t fully understand how it works.
“They are too busy to research it, so put this in the ‘too hard’
basket. When they can’t secure bank funding, they just tip their own
money in to fund growth.”
For growth SMEs, almost twice as many as in H1 2018 say their cash flow is worse or significantly worse (21.2%, up from 12.3%). At the same time, non-growth SMEs reporting worsening cash flow has increased to 17.6%, up from 10% in H1 2018.
According to the survey, 83% of business owners plan to stimulate revenue growth with their own funds.
