‘Excessive’ bank CEO pay under scrutiny

From Investor Daily.

The disparity between bank CEO pay and average weekly earnings is contributing to the uncompetitive nature of Australia’s economy, argues progressive think tank The Australia Institute.

The GFC+10: Executive Pay in Australia report released yesterday by the Australia Institute has scrutinised the pay packages of executives at Australia’s biggest companies 10 years on from the global financial crisis.

Homing in on banks, which had “been a particular focus of attention” in recent times, the report found NAB and Commonwealth Bank of Australia bosses respectively earned 108 and 93 times the average weekly earnings in 2017.

“Pay for the NAB CEO peaked in 2004 but even if we ignore that spike the data still show that CEO pay was increasing rapidly during the bulk of the 2000s, as people were expressing the most concern.”

For the chief executive of CBA at the time, the spike in pay was widest in the lead-up to the global financial crisis.

In fact, seven- or eight-figure remuneration packages were “likely to have played an important role in the global financial crisis” wherein chief executives risked long-term performance for short-term gains, the report said.

Such a significant gap in the earnings of average workers compared with top executives also reflected “to a large extent the uncompetitive nature of the modern Australian economy”.

“It has to be stressed that the issue of massive CEO pay is one associated with industry concentration and the dominance of big business in the Australian economy,” it said.

“According to tax office data 390,774 companies reported a positive income and declared taxable income of $281 billion, giving the ‘average’ company an income of $719,201 in 2015.

“An economy dominated by ‘average’ companies could never pay CEOs anything like the amounts going to the CEOs of the top Australian oligopolies and monopolies,” said the report.

While “growth in CEO pay was quite dramatic in the lead up to around 2007 or 2008” and had moderated since then, the report concluded remuneration for these top executives “remains excessive”.

NAB launches super virtual assistant

From Financial Standards.

NAB has launched a digital assistant that helps MLC members engage with their superannuation.

Available on Google Home devices, Talk to MLC answers 15 common questions members ask: such as how to open an MLC account, find lost super and change investment options.

MLC customer experience specialist Peter Forster said the super fund expects most members to access superannuation in a way that’s convenient and personalised without the need for passwords.

He said millennials and older Australians will likely be the first to embrace Talk to MLC.

“The technology took us six weeks to develop and deploy, and we’re in the process of developing other technology at a similar speed that will help to reduce asymmetry of information and further benefit our customers,” Forster said.

He added in the near future MLC will be able to provide personalised tips to help members boost their super; project where their super balance will be at retirement time; and advise how best to invest their money in super.

NAB executive general manager of digital and innovation Jonathan Davey said the proliferation of voice-activated, hands-free devices such as Siri and Google Home and Amazon’s Alexa in the Australian market is reshaping consumer behaviour and expectations.

“We live in a world that wants instant gratification. We want quick answers and problems that are solved immediately – we don’t want to be left waiting. Our lives are busier than ever before,” Davey said.

Early this year, CBA launched Ceba, a chatbot that recognises about 60,000 consumer banking questions.

Ceba’s point of difference, according to CBA executive general manager digital Pete Steel, is that it can actually carry out tasks for customers, rather than providing instructions on how they can be done.

ANZ is also deploying chatbots with the help of Progress’ NativeChat, to enable customers to converse and transact with chatbots naturally. NASDAQ-listed Progress helps develop industry-specific and self-learning chatbots for organisations.

Banking Is Changing – A Case In Point – NAB and The Riverina

A release from NAB today.  Bye-bye branches.

In 2018, the way customers are banking in the Riverina and the surrounding areas has changed. Today, in response, NAB confirms changes to some of its branches in the area.

  • NAB invests $1.6M to improve branches in the Riverina and surrounding areas in 2017 and 2018.
  • Following consultation with local teams, NAB can confirm Ardlethan, Lockhart, Grenfell, Culcairn, Boort, Barham and Euroa branches will close in June.
  • Customers in these towns can continue to do their banking at Australia Post offices, including making deposits up to $10,000 cash or withdrawals up to $2,000 per day.
  • NAB continues to back the Riverina through its other NAB branches across the region, sponsorships, including NAB AFL Auskick, and by funding and advocating for infrastructure so regional areas can grow.
  • Our business and agri bankers will continue to service the areas.

Locally, NAB is investing more than $1.6M into improving branches in Cowra, Seymour and Kerang, completed last year, and Tatura, Alexandra and Griffith, scheduled to be completed by September 2018, including installing and upgrading 32 ATMs in the area. Many of these ATMs are ‘Smart ATMs’, where customers can make deposits, check balances, and withdraw cash so customers can bank at their convenience.

As improvements are made to some branches, other branches in the area will be closing. Between 80-90% of NAB customers in Ardlethan, Lockhart, Grenfell and Culcairn are using other branches in the area such as Temora, Wagga Wagga, Young and Holbrook. Similarly approximately 85% of customers using Euroa, Boort and Barham are using other branches .

NAB General Manager, Retail, Paul Juergens, explained the decision was a difficult one to make and was only made after careful consideration.

“While our branches continue to be an important part of what we do at NAB, the way our customers are banking has changed dramatically in recent years,” Mr Juergens said.

“Increasingly we find that our customers are banking at other branches, or prefer to do their banking online, on the phone, or through our mobile app.

“In the locations we are closing, more than 80% of our customers are also using our other NAB branches in the area.

“Importantly, we are continuing to support the Riverina and surrounding areas, including a $1.6M investment into other branches in the area as well as through local sponsorships.”

Mr Juergens emphasised that NAB wants to continue to help our customers with their banking.

“Over the coming weeks, we’ll be spending time with our customers explaining the different banking options available to them, including online banking and banking through Australia Post.

“We know that some NAB customers still like to bank in person, which is why we have a strong relationship with Australia Post offices, which offer banking services on NAB’s behalf.

“At Australia Post, NAB customers can do banking like check account balances, pay bills and make deposits up to $10,000 cash or withdrawals up to $2,000 per day.”

NAB is working with our local branch employees to discuss their next steps.

“When we make changes to our branches, we make every effort to find opportunities for our local teams at other branches in our network, and often this is possible. If we can’t find opportunities, we help our employees through The Bridge, our industry leading program where employees are provided up to six months of career coaching as they decide what’s next for them – whether that be retirement, pursuing a new career or starting a small business.”

On The Banking Royal Commission

The first full day contained a number of significant revelations, including that millions have been paid by the banks in remediation, the fact that some entities appeared not to be fully cooperating with the Inquiry and others admitted conduct “falling below community standards and expectations”.

Remediation includes $250m to 540,000 home loan customers, relating to fraudulent documents, poor processes and failure in responsible lending practices.  In addition $11m remediation was paid to to 34,000 card customers relating to responsible lending. Also $128m was paid relating to add on services, including a significant amount for car loan add ons and  $900,000 for home loan add ons relating to 10,500 consumers. Also remediation of $90m was paid relating to car loans to around 17,000 consumers relating to fraudulent documentation and responsible lending obligations.

I discussed the issues raised by the first day of the current hearing rounds on ABC Illawarra this morning.

A good summary also from Australian Broker, looking at the NAB “Introducer Programme”.

Banks’ mortgage practices came under heavy scrutiny on Tuesday, as the Royal Commission began the second round of hearings in its inquiry on misconduct in the financial services industry.

Prime Minister Malcolm Turnbull announced the Royal Commission in November last year, to investigate how financial institutions have dealt with misconduct in the past and whether this exposes inherent cultural and governance issues.

According to ASIC figures, banks have paid almost $250m in remediation to almost 540,000 consumers since July 2010 for unacceptable home loan practices. Reuters data show that Australia’s four largest banks – CBA, ANZ, Wetpac, and NAB – hold about 80% of the country’s $1.7trn mortgage market.

During Tuesday’s hearing, officials shone a spotlight on National Australia Bank’s (NAB’s) “introducer program,” which paid third party professionals for referring their customers to the bank for loans. Unlike brokers, they are not required to be licensed or regulated by the National Credit Act.

NAB fired 20 bankers in New South Wales and Victoria last year and disciplined 32 others, after the bank’s review identified around 2,300 home loans since 2013 that may have been submitted with incomplete or incorrect information.

According to Rowena Orr, a barrister assisting the Royal Commission in Melbourne, the bank derived more than $24bn-worth of home loans when the misconduct took place from 2013 to 2016. “The introducer program was extremely profitable for NAB during the period where misconduct occurred, she said.

The Introducer Program still operates up to this day, with some 1,400 “introducers.” There were about 8,000 of them from 2013 to 2016, said NAB banker Anthony Waldron, who was put forth as a witness for the inquiry.

In an open letter released on Monday, NAB CEO Andrew Thorburn described the incident as “regrettable and unacceptable.” He said the bank has made changes to the introducer program, and has also cooperated with the Royal Commission’s requests for information over the last few months.

“The simple fact is that none of these issues are acceptable. They should not have happened in the first place, and they show that we haven’t always done right by our customers or treated the community with respect. This is not good enough,” Thorburn added.

NAB Ventures invests in BRICKX

The fractional property investment property BRICKX has today announced that NAB Ventures, National Australia Bank’s corporate venture capital arm, has invested in the home-grown startup as part of  a $9 million (AUD) Series A funding round.

Here is an ABC segment on BRICKX from 2017, which discusses the concept.  It can either be seen as an innovative way to facilitate housing affordability, or the ultimate in the financialisation of property. You decide!

BRICKX is a revolutionary new and affordable way for Australians to invest in residential property by buying ‘Bricks’ in a BRICKX property. This unique approach, called fractional property investment, means people can invest in quality residential properties for as little as a few hundred dollars.

NAB Ventures – which supports businesses and entrepreneurs in their quest to build leading technology companies – saw the investment potential in democratising property ownership in the Australian market.

The value of BRICKX in providing Aussies with a financial stepping stone to achieve the Australia Dream of home ownership was another driver for investment.

Anthony Millet, BRICKX CEO, said: “Housing affordability continues to be a priority for Australia’s banks, so the alignment between BRICKX and NAB Ventures has a strong and unified purpose. BRICKX is expanding rapidly and this high profile and experienced group of investors will help us in our goal to assist millions of Australians to get their foot onto the property ladder.

“The prohibitive costs and high deposits needed to gain access to the property market, has left many out in the cold. However, BRICKX has opened up the residential property asset class as an alternative investment to any of the traditional investment options.

“Considering the recent volatility in the cryptocurrency and stock markets, Australians are recognising the longer-term stability of property prices.”

Todd Forest, Managing Director of NAB Ventures, said he was excited to invest in BRICKX and help support a new way of approaching property ownership.

Forest said: “The aspiration for property ownership has long been the Australian dream, however buying a property often has challenges for many consumers – such as the rise in house prices in some areas and trying to save for a deposit.

“BRICKX is disrupting this journey, in how it provides consumers with access to the property market and engages with them in creating a pathway to property ownership.

“NAB Ventures has scanned the market globally, to identify a range of companies and business models that attempt to solve for this, particularly as NAB looks to support its customers along the full home ownership journey.

“NAB Ventures chose BRICKX as the leading opportunity, based on its unique business model, exceptional user experience and the opportunity to leverage the platform to innovate and help more Australians with their home ownership goals.”

Founded in 2014, BRICKX launched to retail investors in September 2016 and has grown to offer 14 properties across Sydney, Melbourne and Adelaide along with more than 9,000 members.

The NAB Ventures investment in the ‘Series A’ funding round for BRICKX follows on from Westpac’s Reinventure investment in late 2017. Since the Reinventure investment, the number of BRICKX members has grown by nearly 25%.

News Corp is quietly selling NAB home loans

In Finance, things are not always what they appear to be. The point made in the recent Productivity Commission report! See this excellent piece from of The New Daily showing NAB’s connectivity and influence across the home loan industry – a classic example of vertical integration and more.

Fans of Married at First Sight and My Kitchen Rules may have noticed over the past few days that popular property website realestate.com.au has started advertising a new product: home loans.

According to the ad, you can now go through the entire process of buying a house – from searching for properties and applying for conditional approval, to actually getting a mortgage – through the website.

This process will no doubt seem extremely convenient to many house hunters. And given the huge popularity of realestate.com.au – it claims to have 6.45 million visitors a month – take-up is likely to be high.

But there is something consumers really need to know about it. Realestate.com.au Home Loans is not an independent initiative. Far from it. It is a deal between Rupert Murdoch’s News Corp, which owns 61.6 per cent of realestate.com.au, and big-four bank NAB.

The first part of the deal with NAB

Last June REA Group, the company behind the realestate.com.au website, signed what it called a “strategic mortgage broking partnership” with NAB. Only now, though, has it started widely marketing this new deal.

So what is the nature of the deal? Well, on the face of it, realestate.com.au appears to be a mortgage broker in its own right. But that is not actually the case.

What REA Group is actually doing is piggy-backing on a mortgage broker called Choice Home Loans. In other words, while the branding may be realestate.com.au, the actual mortgage broking firm is Choice Home Loans.

And who owns Choice Home Loans? NAB does.

The second part of the deal

Another key part of the deal is that house hunters who use realestate.com.au can actually apply for “conditional approval” of a mortgage through the website.

Conditional approval allows you to bid for a property at auction, among other things. It must be provided by a mortgage lender. In this case, that mortgage lender is NAB.

So to re-emphasise the point – if you get conditional approval through realestate.com.au, it will be provided by NAB.

The third part of the deal

However, getting conditional approval with NAB does not commit you to a NAB home loan.

So what happens if you do buy a house through realestate.com.au? Well, you then have to pick a lender. And here you have a choice.

First, you could choose a realestate.com.au ‘white label’ loan. This is a loan that on the face of it looks like it is provided by realestate.com.au.

But once again appearances are deceptive. REA Group does not have a mortgage lenders’ licence. So while these loans may be branded realestate.com.au, they are actually provided by a nationwide mortgage lender called Advantedge.

And who owns Advantedge? NAB does.

If you don’t fancy the realestate.com.au home loan, there are other choices. First, there is a range of NAB mortgages.

And then, there is a list of mortgages from other providers – more than 30 of them, including big names like Westpac, ANZ, Commonwealth Bank, Macquarie, ING, ME, UBank – the list goes on.

Oh, and by the way, that last bank mentioned – UBank – is also owned by NAB.

REA Group assures The New Daily that its (or, to be precise, NAB’s) mortgage brokers do not spruik the realestate.com.au, NAB or UBank loans to their customers at the expense of other loans.

But the rules around this are fairly fuzzy. The Australian Securities and Investment Commission told The New Daily that, while mortgage brokers must not mislead or misrepresent the products they are selling, they also do not have a “duty of care” to their customers.

This means there is a lot more leeway for favouring certain products.

Also, unlike financial advisers, mortgage brokers can and do take commissions from lenders. That’s why you don’t have to pay for their services.

So even if NAB/REA Group don’t sell you a NAB loan, they still get the commission.

None of this is illegal. But the depth of NAB’s involvement in the new service is not made clear on the website. And given NAB is a vested interest, consumers really need to know how deeply involved the bank is before they make one of the biggest financial decisions of their life.

Fitch Affirms Australia’s Four Major Banks

Fitch Ratings has affirmed the ratings of Australia’s four major banking groups: Australia and New Zealand Banking Group Limited (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank Limited (NAB) and Westpac Banking Corporation (WBC). The Outlook on each bank’s Long-Term Issuer Default Rating (IDR) is Stable.

The rating review focuses on the Australian-domiciled entities within each group and therefore does not encompass their overseas subsidiaries.


The Long- and Short-Term IDRs and Stable Outlook on all four banks are driven by their Viability Ratings and reflect their dominant franchises in Australia and New Zealand as well as robust regulatory frameworks. Stable, transparent and traditional business models have proven effective in generating consistently strong profitability, while the banks maintained a conservative risk appetite relative to many international peers. High exposure to a heavily indebted household sector and increased focus on conduct related issues from authorities offset some of these strengths.

Australia’s banking regulator has been critical in helping the banking system manage rising macroeconomic risks – including historically high household debt and house prices, low interest rates and subdued wage inflation – through strengthening underwriting standards and increasing capital requirements. This has contributed to improving the banks’ ability to withstand a severe downturn in the housing market and household sector should it occur.

However, a severe downturn is not Fitch’s base case. We expect Australian house prices to remain high relative to international markets, with modest price rises in 2018. Overall, property prices should be supported by low interest rates and population growth. Offsetting this is high household debt, falling rental yields, increasing supply and rising dwelling completions.

Household debt could increase further, driven by historically low interest rates and high house prices, as residential mortgages make up almost 70% of household debt. Household debt reached 188% of disposable income at end-September 2017. Combined with low wage growth and high underemployment, this leaves households increasingly susceptible to higher interest rates and deteriorating labour market conditions.

The four major banks dominate their home markets. Their combined loans accounted for 80% of Australia’s total loans at end-December 2017 and 87% of New Zealand’s gross loans at end-September 2017. The banks have simplified their businesses and footprints with a strong focus on their core banking operations in Australia and New Zealand, or are in the process of doing so. They have well established and long standing competitive advantages and strong pricing power – manifested in strong earnings, profitability and balance sheets – which is likely to be maintained over the next two to three years.

The increased focus on conduct and competition by authorities has resulted in the establishment of a number of inquiries, the outcomes of which are uncertain. This could limit the banks’ growth potential and pricing power, pressuring the banks’ company profiles and ultimately affecting their ratings, although any significant impact appears unlikely to arise within the next two years.

Conduct related issues may also negatively affect our view of risk appetite and ratings if they indicate widespread failing within a bank’s risk-management framework. All four banks have faced a number of conduct related issues in the previous few years, although we continue to see these as isolated cases and believe risk-management frameworks remain robust. CBA has faced particular scrutiny following the August 2017 announcement of failures related to its anti-money laundering and counter-terrorism financing requirements. This, combined with a number of other infractions, prompted a regulatory inquiry into CBA’s governance, culture and accountability. Findings of systemic failure by this inquiry could pressure CBA’s ratings.

Disruptors, particularly in the digital sphere, are increasing in prominence, although they remain a small part of the system. The disruptors also pose some longer-term risks to the franchises of the major banks, although management appears to be addressing this pro-actively with strong IT investments, which we expect to continue.

Fitch expects the banks’ credit risk appetite to remain tight. We believe the banks have robust risk management frameworks. Regulatory intervention and oversight provide an additional restriction on the banks’ ability to take larger risks by weakening underwriting standards. Fitch expects additional regulatory scrutiny on serviceability testing in 2018, particularly around the assessment of borrowers’ expenses, which should further strengthen underwriting. Limits on growth rates for investor and interest-only loans has seen the pace of growth in these products slow; we see these as riskier types of mortgages relative to amortising owner-occupier mortgages. The growth rates of these products could be further curtailed by proposals by the regulator to have them carry higher risk-weights than amortising owner-occupier loans.

We believe the banks’ asset quality is likely to remain a strength relative to similarly rated international peers, although some weakening is possible through 2018. Large losses are not probable without an economic shock, such as may occur if there was a sharper-than-expected slowdown in China. Industries, such as retail, may come under pressure from soft consumer spending due to low wage growth, high household debt and competition from online retailers. However, given the banks’ limited exposure to the retail sector, our base case means any deterioration should be manageable.

Fitch believes the Australian major banks are well-capitalised and will meet Australian Prudential Regulation Authority requirements for “unquestionably strong” capital ratios well ahead of the proposed deadline. Implementation of the final Basel III framework should not be onerous either. Comparisons of risk-weighted ratios with international peers are difficult due to the Australian regulator’s tougher capital standards relative to many other jurisdictions. These include, among other factors, higher minimum risk-weightings for residential mortgages through Pillar 1 and larger capital deductions.

Funding remains a weakness relative to similarly rated international peers. Fitch expects the banks to continue relying on wholesale markets in the medium-term, although strengthened liquidity positions and swapping borrowings into the functional currency – usually either Australian or New Zealand dollars – help offset some of this risk. The banks’ funding profiles are also supported by access to contingent liquidity through the central bank, if needed, and the likelihood that they would benefit from a flight to quality in a stress environment.

Profitability growth is likely to slow in 2018, reflecting Fitch’s expectations for slower asset growth, competition for assets and deposits, higher funding costs and a rise in loan-impairment charges from cyclical lows. Cost management will remain a focus, but could be affected by continued technology investment and regulatory-related costs.

NAB Job Cuts 1,000 Jobs as ‘Digitisation’ Takes Hold

From Investor Daily.

NAB staff were informed by chief people officer Lorraine Murphy yesterday that “the next phase in transforming our business is underway, as part of a three-year process”.

In November 2017, InvestorDaily reported on the major bank’s plans to cut 6,000 jobs and create 2,000 new digital-focused jobs by 2020.

A NAB spokesperson told InvestorDaily approximately 1,000 jobs will be cut every six months for the next three years.

InvestorDaily understands the exact number of job losses in the first half of 2018 will depend on the number of voluntary redundancies and redeployments into digital-focused roles.

“The proposed new structure will reduce the layers and complexity in the bank so that we can be simpler, make decisions faster and be even closer to our customers,” the bank said in a statement.

Ms Murphy said there was “no doubt” this transition was right for the bank business.

“We will acknowledge the contribution that people who are leaving us have made. We will show through our actions that we care,” said Ms Murphy.

Staff that leave the bank will have “world-class support” through the bank’s career transition program titled ‘The Bridge’, which will offer employees made redundant with six months of support and resources.

“We said we would provide the utmost care and respect for all of our people. This remains our priority,” Ms Murphy said.

“I encourage you to ensure that all of our people understand the changes and are supported, and that those who remain with us can deliver the type of bank we have promised our customers – a simpler, faster bank.”

InvestorDaily also reported on comments made by NAB chief executive Andrew Thorburn, who signalled the number of bricks-and-mortar branches was declining.

“What’s happening is that more and more customers are using their mobile device and online banking, and some branches are being used less and less and less,” Mr Thorburn said in November.

“And as that happens, like any business, we need to adjust.”

However, in a statement, the Finance Sector Union (FSU) expressed concerns that the job cutting “does not meet community expectations”, pointing out that with the royal commission underway, Australian banks are being watched closely and NAB should take this responsibility to “rebuild its brand”.

“This is not just 6,000 workers that will lose their jobs – it’s 6,000 people that will have to go home and tell their families they no longer have work,” said FSU national secretary Julia Angrisano.

Many of the workers whose jobs would be axed or made redundant will have been at the bank for years and were a driving force behind NAB’s profits, Ms Angrisano pointed out.

“It’s not like NAB is in trouble – they can afford to retrain their workers. They made $6.7 billion dollar profit last year,” she said.

“Post retrenchment support is too little too late, workers need to be re-skilled to move into the jobs of the future now.”

NAB and Comprehensive Credit Reporting

NAB has today commenced Comprehensive Credit Reporting (CCR) for personal loans, credit cards, and overdrafts, as announced in October 2017.

NAB is the first major bank to start participating in CCR, well ahead of the Government’s mandatory scheme.

NAB Chief Operating Officer, Antony Cahill, says NAB has taken a leadership position on CCR since the start.

“Under Comprehensive Credit Reporting, we now have a more holistic picture of a customer’s credit situation, so we’re better able to make sure our customers receive the right type and amount of credit for their individual circumstances.

“We believe CCR is good for competition, and will mean better outcomes for customers.

“A number of smaller players have been participating in CCR already, and the Government recently released draft legislation to make it mandatory for all the major banks.

“We’re pleased to be going live with CCR today, and we look forward to seeing it roll out across the industry.”

About Comprehensive Credit Reporting:

  • Most Australians have a credit report. CCR will mean credit reports will represent a more balanced reflection of their credit history.
  • For decades, a credit report has contained only negative information – information like when someone’s defaulted on a loan, and how many credit enquiries they’ve made.With Comprehensive Credit Reporting, positive credit information will be added – including which accounts have been opened, credit limits on those accounts, and details of monthly payments made as well as missed.
  • This will provide a more complete picture of a customer’s situation, and mean that lenders like NAB are better able to match our provision of credit to a customer’s individual needs.
  • NAB has commenced CCR for personal loans, credit cards, and overdrafts. Later this year, other types of lending will also be included. NAB is phasing its roll out of CCR to ensure a smooth transition for customers

NAB Trims Loan To Income To 7x

From Australian Broker.

NAB has made a change to its home lending policy amid concerns over the rising household debt to income ratio and as APRA zeroes in on loan serviceability.

From Friday, 16 February, the loan to income ratio used in its home lending credit assessment has been changed from 8 to 7.

“Regulatory bodies have raised concerns about Australia’s household debt-to-income ratio, which has risen significantly over the past decade,” said NAB in a note to brokers.

It said it is committed to ensuring its customers can meet their home loan repayments now and into the future.

With the new change, loan applications with an LTI ratio of 7 or less will proceed as normal and will be subject to standard lending criteria, according to the note.

For an application with an LTI ratio of more than 7, the bank will automatically decline or refer it depending on the income structure, i.e. pay as you go or self-employed.

NAB said its serviceability calculator will be updated to reflect these changes.

The bank introduced an LTI ratio calculation for all home loan applications last year. It was also last year when it started declining interest-only loans for customers with high LTI ratios.

As Australian Broker reported in July 2017, the bank extended the use of LTI calculation to determine the credit decision outcome for all interest-only home loan applications.

NAB said then that tougher serviceability assessments for interest-only loans would help strengthen its lending policies.

The bank’s latest change to its credit policy comes after after ANZ and Westpac made changes to their assessment and approval of borrowers.

Westpac recently introduced strict tests of residential property borrowers’ current and future capacities to repay their loans, to identify scenarios that might affect their ability to service their debts.

From 26 February, brokers who make changes to a loan application that has been submitted to Westpac will have to resubmit it.

Similarly, ANZ added “a higher level of approval for some discretions” used in its home loan policy for assessing serviceability. It was also reported to be clipping the discretion of its frontline mortgage assessors.

Stricter assessment of borrowers’ ability to repay their loans will likely become the norm now that APRA is focusing on serviceability in its proposal that targets higher-risk residential mortgage lending.

The prudential regulator released a discussion paper on 14 February proposing changes to authorised deposit-taking institutions’ capital framework and addressing what it calls systemic concentration of ADI portfolios in residential mortgages.