A number of factors have contributed to this, including instability in the market value of farms, policy changes that make farms more reliant on financial instruments, and shifts in the global positioning of farm land relative to other forms of property.
The commission has heard that local lending brokers were not qualified to value farm properties, and that farm valuations have become fluid and unpredictable.
Sometimes farms and farmland were deliberately overvalued. Higher values enable farmers to borrow more money for farm improvements, and the local lending branch manager to earn higher commissions.
Not only do the central administrators in banks lack the information and expertise to question these assessments, their business models have encouraged overvaluation and overborrowing as a means to grow their businesses.
Across the Murray Darling Basin banks have taken the separation of water from land – a precursor to the marketisation of water – as a cue to devalue land.
This has provided a reason to void existing loan agreements and to offer refinancing under more arduous conditions. Farmers have no option to refuse, and so borrow with the expectation that a couple of good years will put them back on track.
And if the good years don’t materialise, farms fall into financial stress.
This confronts a third issue, which is that in the bad years farms are harder to sell so their market value plummets. This compounds the problem.
Farmers are more reliant on banks
Policy changes have made farms more reliant on banks.
Since Australia adopted open-market policies in the 1980s and agricultural markets have become global, farmers have been exposed to global price changes.
Drought assistance has also been reoriented to rely on market-based instruments, such as loans from banks rather than grants from governments. In the wake of the deregulation of the financial system, and the post-financial crisis consolidation of the farm lending sector, many farm-specific loan products have disappeared. So banks tend to treat farms as businesses like any other.
The open-market policies also create an imperative to expand landholdings (“get big or get out”) and to invest in the latest equipment and technologies. Since this requires borrowing, it thrusts farmers onto a credit treadmill.
Of course, low interest rates have also stimulated borrowing for farm expansion.
Increasing corporate control of farm inputs (seeds, fertiliser etc.) and outputs is squeezing farmers’ capacity to earn enough to service their loans.
To make matters worse, the declining terms of trade impel farmers to increase productivity just to stand still.
The farmers before the royal commission have mostly managed to stay on the treadmill, but only until the banks’ rule changes cranked up the speed to throw them off.
It’s clear that despite their crucial role, many banks still don’t really “get” the vagaries of farming. They don’t understand how different farm lending is – or should be – to commercial and housing lending. Neither do they seem to appreciate the broader social and economic dimensions of the role they have in managing farm risks.
Dramatic revisions to land valuations, as discussed in numerous cases described in the commission, can undermine an entire farming region’s equity.
The accelerated thinning out of the farming population impacts on local economies and sporting teams, among others. In the lead-up to and during the whole process of deregulation, farmers were continually reassured – in reports by the Productivity Commission, for example – that the credit market would evolve to meet their needs.
The evidence that the commission has heard in many respects represents a case of market – and regulatory – failure.
Since the global financial crisis, farm land has become an attractive investment for wealthy families and institutional investors, and for governments worried about food security.
As this pushes up land values, banks can be more aggressive towards failing farms. Foreclosures free up land for deep-pocketed investors.
It would be a mistake, then, to conclude that the stories coming out of the commission are an isolated issue relating to the one bank’s heavy-handed mopping up after the failure of a specialised rural lender – as was the case with ANZ and Landmark.
On the contrary, there are many stories of different banks imposing financial risk frameworks on farmers that are ill-equipped to accommodate the vagaries of farming production and pricing.
When farmers jest about being owned by the banks, they aren’t joking.
We should ask why the government took so long to acknowledge the problems of rural finance and the effects on farming communities.
After the commission concludes, it is likely that banks and regulators will tighten the risk parameters on farm lending and make it harder for smaller family farmers to access finance.
Vulnerable farms will not be able to borrow as much money as in the past. This might be prudent from a financial risk perspective.
However, if city bankers don’t understand farming and don’t make allowances for the volatile and uncertain economies of farming, there’s still no guarantee that tighter rules will translate into better decisions and more positive outcomes.
Rather, tighter rules are likely to have uneven consequences, further disadvantaging smaller family farms relative to deep-pocketed agribusinesses. So, in effect, restricting credit is likely to accelerate the transfer of farmland from family farms to more corporate entities including transnational corporations.
Author: Sally Weller Reader, Australian Catholic University; Neil Argent Professor of Rural Geography, University of New England
Welcome to the Property Imperative weekly to 30th June 2018, our digest of the latest finance and property news with a distinctively Australian flavour.
Watch the video, listen to the podcast or read the transcript.
On the global stage, U.S. stocks were met with heavy selling pressure this week as the trade war hotted up. While earlier in the week, Donald Trump decided against imposing measures to restrict Chinese investment in U.S. based technology, the market is still reacting to the initial U.S. and Chinese tariffs which are coming into effect next week. In the world of bricks and click, Amazon was back in the headlines after the e-commerce giant announced its entry into the pharmacy sector with the purchase of Pillpoint. This triggering widespread panic, sending shares of brick-and-mortar drug stores sharply lower. Nike, meanwhile, showed improved results after revealing its first positive North America sales number in over a year. The S&P 500 closed 0.08% higher to close 2,718.37.
Boomberg says a leaked report from a Chinese government-backed think tank has warned of a potential “financial panic” in the world’s second-largest economy, a sign that some members of the nation’s policy elite are growing concerned as market turbulence and trade tensions increase. Bond defaults, liquidity shortages and the recent plunge in financial markets pose particular dangers at a time of rising US interest rates and a trade spat with Washington, according to a study by the National Institution for Finance & Development The think tank warned that leveraged purchases of shares have reached levels last seen in 2015 – when a market crash erased $US5 trillion of value. “We think China is currently very likely to see a financial panic,” NIFD said in the study, which appeared briefly on the internet on Monday, before being removed. “Preventing its occurrence and spread should be the top priority for our financial and macroeconomic regulators over the next few years.” The Australian dollar fell against the Chinese yuan from March to early May.
The China effect is on top of damming criticism of Central Bank’s policy by the Bank For International Settlements, which we discussed in our post “Red Alert From The Bankers’ Banker”. They say, economies are trapped in a series of boom-bust boom-bust cycles which are driving neutral interest rates ever lower and driving debt higher. The bigger the debt the worse the potential impact will be should rates rise (as they are thanks to the FED). Yet in each cycle “natural” interest rates are driven lower. Implicitly the current settings are wrong. This was in the Bank for International Settlements latest annual report. They also discussed how banks are fudging their ratios using Repo’s in our post “Are Some Banks Cooking the Books?” Within its 114 pages, the BIS report painted a worrying picture of where the global economy stands. In fact, the risks in the global monetary system remain from the Lehman crisis in 2008 and aggregate debt ratios are almost 40 percentage points of GDP higher than a decade ago.
Crude oil prices were strongly up, their highest since November 2014 extending a rally for a fourth-straight week as focus shifted to the prospect of deeper losses of Iranian crude supplies as the U.S. threatened sanctions on countries that fail to halt Iranian crude imports by Nov. 4. Then there were unexpected disruptions in Canada, Libya and Venezuela, together curbing supply and in addition, U.S. crude supplies fell by 9.9 million barrels. Crude futures settled 65 cents higher on Friday as data showed U.S. oil rigs counts fell for the second straight week, pointing to signs of tightening domestic output.
The US dollar was roughly unchanged for the week as heavy selling pressure on Friday reversed earlier gain after the euro rallied sharply on news of EU members agreeing on measures to tackle the migrant crises in the EU including stepping up border security and setting up holding centers to handle asylum seekers. A signal of easing political uncertainty within the bloc sent the EUR/USD sharply higher, to $1.1677, up 0.94%. The US dollar fell 0.82% to 94.22 against a basket of major currencies on Friday.
Gold tumbled further again this week and suffered its biggest monthly slump since September as investors preferred the US$. This was partly because the FED indicated they were comfortable with inflation running above the inflation target over the near-term, in reaction to the news that inflation hit the Fed’s 2% target for the first time since May 2012, raising the prospect of a faster pace of rate hikes.
And the crypto crunch continues. Bitcoin for example went below $6,000 and it could go lower still. No one is sure where the firm base is, so expect more volatility ahead.
And talking of volatility the COBE VIX index ended the week at 16.09, having been higher earlier in the week, up from the 10-12 range seen earlier in the year, but well below the peaks seen in February. As an indicator of perceived risk, this suggests there are more in the system than last year.
Locally the Australian Dollar ended at 74 cents, and the trend down since February is striking, perhaps mirroring rising UD Bond rates, higher capital market interest rates, and the Financial Services Royal Commission which recommenced this week in Brisbane with a focus on country’s $50 billion farm sector and farm finance, 70% of which resides in Queensland, New South Wales and Victoria. And it was more really bad news for the banks, who again demonstrated poor practice, and in some cases deception. But this is a complex area, with farmers sensitive to weather extremes, global commodity prices, and changing land prices. And players such as liquidators seemed to profit from the failure of farmers, despite selling land and equipment well below value. They are not in scope for the Royal Commission, but we think they should be. There is clearly a case for ASIC to take a more hands-on role in farm finance as some rural lenders, such as the non-bank ones, are not covered by existing complaints-handling systems. But overall, this is another example of poor culture in the banking industry, and players including ANZ and CBA are under the microscope. The findings were so damming that the Commission decided to spend more time looking at farming case studies. For bank-originating farm debt, some lenders changed loan contract terms for farm businesses that were late with payments or in default without warning or explanation. More broadly, the Commission heard about declining access to banking services for the 6.9 million Australians in rural areas, the inflexibility of lenders toward farm-specific challenges like weather, trade disputes, and lack of customized regulations for the sector.
The latest credit data from APRA and RBA, out yesterday, showed that May credit slowed sharply to equal a 6-year low of 0.2% m/m, and a 4-year low of 4.8% y/y. We discussed this in our post “May Credit Snapshot Tells the Story”.
As UBS highlights, private credit growth has weakened more quickly than expected to only 0.2% m/m, the equal weakest since 2012; also dragging the y/y to an equal 4-year low of 4.8% (after 5.1%). Also, total deposits growth collapsed in recent months to only 2.4% y/y, the weakest since the last recession in 1991. Meanwhile, the household debt-to-income ratio lifted to a record high of 190% in Q1- 18. However, mainly due to falling house prices, household wealth declined by 0.4% q/q, the largest fall since 2011. While this followed a surge to a record high level of $10.3 trillion in Q4-17, the change in wealth drives the household saving ratio, consistent with a fading ‘household wealth effect’ dragging consumption ahead. They say this will spill over and an ~8-10% fall in new car sales volumes is a strong possibility, Further evidence of the second order impacts.
Housing auction clearance rates slid to a ~6-year low of ~54%, housing credit growth eased to a >4- year low dragged by investors slumping to a record low, while industry data on owner occupier home loans suggests this also started to drop in May; while home prices are falling the most since 2012. Macroprudential policy is reducing borrowing capacity and leading to a clear weakening of housing, which will continue ahead.
CoreLogic says last week, 1,849 auctions were held across the combined capital cities, returning a final clearance rate of 55.5 per cent, increasing from the previous week when 52.4 per cent of the 2,002 auctions held were successful, the lowest clearance rate seen since late 2012. This time last year, the clearance rate was 66.5 per cent across 2,355 auctions.
Melbourne’s final clearance rate was recorded at 59.9 compared with a clearance rate of 70.7 per last year. Sydney’s final auction clearance rate was 50.1 per cent compared with a clearance rate of 68.2 per cent last year. Across the smaller auction markets, clearance rates improved everywhere except Tasmania, however only 3 auctions were held there over the week. Of the non-capital city auction markets, Geelong returned the highest final clearance rate, with a success rate of 71.4 per cent across 26 auctions.
This week they expect to see a lower volume of auctions this week with CoreLogic currently tracking 1,557 auctions, down from 1,849 last week.
Home prices are falling with the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, declined another 0.15%. So far in June home values have fallen 0.24%, driven by Melbourne, Sydney and Perth. So far in 2018, home values have declined by 1.72%, with only Brisbane and Adelaide recording a value increase. Over the past 12 months, home values have fallen by 1.72%, driven by Sydney and Perth. Despite the continuing falls. values are now up 36.2% since the 2010 peak at the 5-city level, driven overwhelmingly by exceptionally strong gains in Sydney at 60.2% followed by Melbourne 42.6% and Adelaide 9.8%. Brisbane is 8.3% and Perth is down 11.4% This is before inflation adjustments, which means in real terms only Sydney and Melbourne prices are ahead.
We see more banks lifting rates on the back of the higher BBSW and LIBOR rates. For example, effective Friday 3 July, ING in Australia said it was making changes to variable rates for existing owner occupier home loan customers. This means interest rates for existing residential home loan customers will increase by 0.10%.
Bank of Queensland announced the variable home loan rate for owner occupiers (principal and interest repayments) will increase by 0.09 per cent, per annum; variable home loan rate for owner occupiers (interest only repayments) will increase by 0.15 per cent, per annum; variable home loan rate for investors (principal and interest and interest only repayments) will increase by 0.15 per cent, per annum; and Owner occupier and investor Lines of Credit will increase by 0.10 per cent, per annum. Anthony Rose, Acting Group Executive, Retail Banking said today’s announcement is largely due to the increased cost of funding. “Funding costs have significantly risen since February this year and have primarily been driven by an increase in 30 and 90 day BBSW rates, along with elevated competition for term deposits.
This just extends the list of players lifting rates, and we think more will follow. So it was interesting to see Bendigo Bank chairman Robert Johanson saying that he believes the RBA has waited too long to move rates. “They’ve been trying to do too much work with monetary policy,” he told Banking Day. “I’m concerned that apart from the impact we’ve already seen on asset values, mortgage rates are going to break from the official cycle and will do so in a disruptive way.” The funding pressures on lenders are emerging at an awkward time for the Turnbull Government, which is required to call a federal election within the next 12 months. A series of out-of-cycle increases across the industry could induce a blistering political response from government politicians who are cognizant of the historical links between election outcomes and mortgage rate rises. Even small hikes would create significant pain as a piece on Nine News, using our mortgage stress data explained.
I discussed the current situation with Economist John Adams this week in an extended interview – see Australia’s Debt Bomb. I recommend this post as we go through the critical issues are how it may play out.
Finally, as we hit the end of the financial year, it’s worth reflecting on the highlights and lowlights of the past year. It has been a bit of a roller coaster, but those with shares invested direct, or via superfunds will have done well, again – as in 9 of the past 10 years has proved to be. We suspect the next 12 months will be less positive, as rising interest rates, trade wars and political tensions all mount. We also have an election ahead, which will also potentially create waves. Trade wars is the area to watch. Our dollar has been sliding through the year, and this is likely to continue next year as we struggle with GDP growth in this volatile environment.
Corporate profits have been growing fast, as companies cut costs and rationalise their businesses and this has translated to higher dividends – and about half have come from the financial services sector overall. Banks will be hard pressed to maintain their dividends ahead, as lending growth slows, pressure on their culture continues thanks to the Royal Commission and regulators exercising their muscles. And the greatest of these is mortgage lending growth which we think will continue to languish. Provisions, which were cut this year, may need to rise ahead as 90 days plus default rates are rising, as wages and cost pressure hit home. Remember also the next round of penalty rate reductions for 700,000 workers in across sectors such as retail will cut pay by 10% comes in 1 July.
Property has done less well, despite being well up over the past year, in that the recent monthly trends are signalling a fall. In some states we will end the year well up, for example Hobart, Adelaide and Melbourne, in others less well. We expect more falls ahead because prices are most strongly linked to credit supply, which is being throttled back. Most centres will be impacted as investors tread water and foreign buyer momentum slows. This might be good news for first time buyers who have been enticed back into the market, partly thanks to recent FTB incentives. We are bearish on the property sector next financial year.
Those needing to get income from savings and deposit accounts have had a torrid time, as banks have cut, and cut again their returns on savings. Many are getting less than inflation, so their hard earned cash has taken a hit. This is likely to continue, despite banks lifting mortgage rates as international funding pressure continues to bite in the months ahead. Households continue to be taxed on their savings at their marginal rate, while those with property get massive tax breaks. If Labor does win the next election, this is set for a shake up!
So overall a mixed year, with some highs and lows, and we think next year will be no different, only more so. Credit trajectory is the one to watch.
The RBA data shows that total housing lending rose 0.37% from last month, up $6.6 billion to $1.76 trillion. Within that, owner occupied housing rose 0.55% or $6.5 billion, and investment lending rose just 0.02% or $220 million. Personal credit fell again, and business lending fell 0.3% down $2.5 billion to $917 billion, all seasonally adjusted.
Investment lending made up 33.5% of all housing loans, down from 33.7% the previous month, and continues to slide, as expected. However the drop in business credit meant the proportion of commercial lending fell to 32.4% of all lending.
The monthly growth trends show the fall in business lending, and the fall-off in investor lending, all seasonally adjusted, which in the current environment may well be writing the volumes down too far.
The 12 month rolling trend shows owner occupied housing still running at 7.9%, well above inflation and wage growth, while investor lending has a read of 2%, which is the lowest see since the RBA series started to be published in 1991. Have no doubt, investor lending is fading.
Personal credit dropped an annualised 1.3%, the largest fall since the fall out from GFC in 2009. Business lending was around 3.8% annualised and slid a little.
Finally, the non-bank contribution to lending growth can be imputed by subtracting the APRA ADI data from the RBA market data. This is an inexact science because of timing and coverage issues across the data. But it tells an interesting story, with non-bank growth rates sitting at around 20% for owner occupied loans and around 18% for investor loans, on a twelve month rolling basis. So we can see where some of the slack in the system is being taken up as non-banks flex their muscles. Regulation of this sector is a concern, as Moody’s highlighted recently. APRA has this responsibility, but how actively they are looking at this segment of the market, when data is so hard to acquire is a moot point. My guess is they are light on.
The rapid growth of non-bank lenders reflects the positive quality of their loan books and residential mortgage-backed securities (RMBS) – but growth should happen in a sustainable way, according to Moody’s Investors Service; via MPA.
Moody’s vice president and senior analyst John Paul Truijens said in a statement that although “investment and interest-only mortgages have historically been riskier than owner-occupier principal and interest mortgages, they are less risky than the non-conforming or alternative documentation loans that most non-bank lenders have traditionally focused on”.
The conclusions are found in Moody’s recently released study, “Financial institutions and RMBS – Australia: Growth opportunities not without risks as non-bank lenders push into investment and interest-only mortgages”. The report was written by Truijens and another Moody’s vice president and senior analyst, Daniel Yu.
The report stressed that the push into investment and interest-only lending has further captured the interest of private equity investors. And this has led to three acquisitions of non-bank lenders in the last nine months.
“If the current rapid growth rate were to be sustained over a prolonged period or even rise, or if non-bank lenders were to push into the riskier segments of the investment and interest-only mortgage markets to maintain growth, this would pose risks,” Truijens and Yu said.
According to them, non-bank lenders may need to rapidly expand their underwriting teams, and this could compromise the quality of their staff experience and risk controls.
If the banks return to pursue strong investments and interest-only lending, increased competition would make it difficult for non-bank lenders to sustain their rapid growth and this could push them to the riskier segments of the mortgage market.
Moody’s still believes non-bank lenders are generally suited to underwrite and risk-price investment and interest-only loans. But borrowers’ financial situations need to be scrutinised even more for these mortgages than for owner-occupier principal and interest loans. The experience of non-bank lenders in underwriting non-conforming loans enables them to demonstrate such scrutiny.
Risks are further lessened by the legislative amendments made in February 2018 that now allow APRA to regulate non-bank lenders.
Funding of non-bank lenders is not guaranteed, according to Moody’s. These lenders depend on “bank funding via warehouse facilities for the initial organisation of loans and RMBS investors for RMBS issuance”. Both funding sources depend on market confidence and economic conditions.
Non-bank lenders are increasingly getting into the investment and interest-only loan market after APRA released a series of measures in 2014 that limit banks from offering such loans. Non-banks accounted for almost 35% of investment loans originated in 2017, up from around 15% in 2014. Their share of interest-only mortgages was around 25%. However, the report said the non-bank mortgage sector still remains relatively small in Australia despite massive growth, accounting for just under 4% of the $1.7trn mortgage market.
The HIA says their New Home Sales report – a monthly survey of the largest volume home builders in the five largest states – provides an early indication of trends in the residential building industry. The May edition is out, and as expected, tighter credit means fewer sales. The largest reduction in house sales occurred in New South Wales.
New house sales declined by 4.4 per cent in May and are now 12.8 per cent lower than the most recent cyclical high that occurred in December last year.
“The first half of 2018 has seen a renewed downward trend in new house sales,” said Tim Reardon, HIA’s Principal Economist.
“Access to finance has become the barrier to ongoing growth in home sales.
“The availability of credit has tightened over the past 12 months with banks responding to the decline in house prices and the Banking Royal Commission by limiting lending to new home buyers.
“Australia’s population growth has slowed over the past three quarters in response to tighter visa requirements that have constrained inward migration.
“And for the first time in this cycle we are seeing sales declining in Melbourne.
“The new home market in Melbourne has been exceptionally strong over a number of years and we are now seeing a very modest slow-down in activity.
“While market conditions are slowing in Melbourne, building activity will continue to be solid given the very large volume of work still in the pipeline.
“The impact of the tighter constraints on finance will ease over the year.
“In fact we are expecting detached house starts to rise slightly in 2018 following the 2.8 per cent decline that occurred in 2017.
“Beyond that temporary lift, we expect the downturn in detached house building to properly take root in 2019 – and house sales appear to be providing a very early indication of this occurring,” concluded Mr Reardon.
During May 2018, new house sales declined in all five markets covered by the HIA New Home Sales Report. The largest reduction in house sales occurred in New South Wales (-6.8 per cent) followed by Queensland (-5.0 per cent), Victoria (-4.6 per cent), Western Australia (-2.4 per cent) and South Australia (-0.2 per cent).
APRA has released their monthly banking statistics to end May 2018. After last months drop, we were waiting to see whether the loosening announced by APRA would show up, and yes, this month there was a rise in both the growth of owner occupied and investment lending!
Total portfolio balances rose by 0.38% to $1.63 trillion, which would translate to be a 4.6% annualised growth rate, well above inflation and wages growth if this rate continued. Thus household debt still grows ever larger (a ratio of 188.6 household debt to income according to the RBA, last December), despite being at record and risky levels.
Within that, owner occupied loans rose 0.52% in the month to $1.08 trillion, up $5.5 billion while investment lending rose just 0.13% to $555 billion, up $712 million. Or in annualised terms, owner occupied loans are growing at 6.2% while investment loans are growing at 1.5%. Investment loans now make up 34.06% of all loans, which is still very high but falling.
Turning to the individual lenders, there is little to be seen at the total portfolio level, with CBA leading the owner occupied lending, and Westpac the investment side of the ledger.
However, the individual portfolios within the lenders are more interesting, with Westpac still leading the way in investment lending portfolio growth, alongside Macquarie and NAB. However CBA and ANZ both saw their investor portfolio balances fall, while still expanding their owner occupied portfolios. Bank of Queensland dropped their balances in both owner occupied and investment lending this month. Clearly different strategies are in play.
Later we will get the RBA numbers, and we will see what the total market trends look like. We suspect non-banks will be growing faster than ADIs.
But overall, this appears to show a willingness to continue to let debt run higher to support home prices, so we are still on the same debt exposed path, should interest rates rise further, as is likely, as we discussed recently. Sound of can being kicked down the road once again!
Many Self Managed Super Funds (SMSF) trustees may not have received “best interest” advice with regards to their fund. This despite the considerable growth in the SMSF sector, which is driven, according to our research, by holders wanting to avoid retail fund fees, and greater control of their finances.
ASIC has released Report 575 SMSFs: Improving the quality of advice and member experiences and Report 576 Member experiences with self-managed superannuation funds.
ASIC reviewed 250 client files randomly selected based on Australian Taxation Office (ATO) data and assessed compliance with the Corporations Act’s ‘best interests’ duty and related obligations.
In 91% of files reviewed the adviser did not comply with Corporations Act’s ‘best interests’ duty and related obligations. The non-compliant advice ranged from record-keeping and process failures to failures likely to result in significant financial detriment. This included:
In 10% of files reviewed, the client was likely to be significantly worse off in retirement due to the advice;
In 19% of cases, clients were at an increased risk of financial detriment due to a lack of diversification.
ASIC Deputy Chair Peter Kell said the standard of advice on SMSFs must improve. ‘A healthy and robust SMSF sector is an important part of our super system. However, it is clear lots of people are setting up self-managed super funds without knowing whether this is the best option. The financial advice sector has significant work to do to lift their performance on this issue.’
ASIC will be taking follow up regulatory action, in particular where consumers have suffered detriment.
ASIC also conducted market research which included interviews with 28 consumers who had set up an SMSF and an online survey of 457 consumers who had set up an SMSF. Through this work we found a lot of people do not understand fully the risks of SMSFs, or their legal obligations as trustees.
In the online survey:
38% of respondents found running an SMSF more time consuming than expected;
32% found it to more expensive than expected;
33% did not know the law required an SMSF to have an investment strategy; and
29% mistakenly believed that SMSFs had the same level of protection as prudentially regulated superannuation funds in the event of fraud.
Mr Kell said, ‘Decisions about super are some of the most important a person can make. However, ASIC found there is a lack of basic knowledge of the legal obligations in setting up or running an SMSF. It is also concerning many people with an SMSF have not understood the importance of diversification, which puts their financial future at risk.’
ASIC also found some people had moved to SMSFs as a way to get into the property market, and were using it solely for this purpose without a wider investment strategy.
The interviews also identified a growing use of ‘one-stop-shops’ where the adviser has a relationship with a developer or a real estate agent whose products the person is encouraged to invest in. This put people at increased risk of getting poor advice that did not take account of their personal circumstances or is not given in their best interests.
ASIC’s findings are supported by the recent Productivity Commission super report which found smaller SMSFs (with balances under $1 million) delivered on average returns below larger funds, and that the costs for low-balance SMSFs are higher than for funds regulated by the Australian Prudential Regulation Authority (APRA).
ASIC’s SMSF report will inform its surveillance and regulatory work into the SMSF sector. ASIC will take enforcement action as appropriate, including ensuring licensees with non-compliant advisers undertake client review and remediation.
More broadly, ASIC and the ATO will have an increased focus on property one-stop-shops. This will include sharing data and intelligence, and ASIC taking enforcement action where it sees unscrupulous behaviour.
The ABA says Australia’s four major banks have reached an agreement to protect vulnerable customers from being unfairly treated in the new mandatory Comprehensive Credit Regime.
The four major banks, who will be required to report the credit history of 50% of customers by the end of September, will not include customers who have reached agreement on hardship arrangements with their bank. This will continue for the first 12 months of the regime while the Attorney-General is conducting a review into this issue.
CEO of the Australian Banking Association Anna Bligh said this was a critical issue for Australia’s major banks who were united behind this arrangement to ensure all customers are treated fairly in what will be an important change in credit history reporting.
“Australia’s banks have been working closely with the Federal Government and other stakeholders to ensure we get this major reform right, without unfairly treating some customers, and implemented without delay,” Ms Bligh.
“Australia’s banks are fully behind this new regime and see the great benefit it can bring in helping customers quickly and easily get a great deal on their personal loans, home loans and credits cards. The four major banks are committed to meeting the start date of 30 September in accordance with the CCR regime.
“Currently if you have a great credit history, the only organisation who knows this is your bank.
“This new regime takes that powerful information and places it into the hands of customers who can ensure they get the best deal possible from a financial institution.
“As with all major reforms in banking it’s important we don’t leave people behind.
Those who have experienced hardship through no fault of their own such as losing a job, sickness, natural disasters or relationship breakdown need to be protected in this new regime.
“Unexpected events happen in life, which banks understand, therefore it’s important that we can discreetly show this on credit histories to make sure customers don’t have further difficulty in the future,” she said.
Very interesting release from Kabbage, highlights the growth of lending to small business online, and outside banking hours. Another example of the digital revolution well underway. 24/7 access rules…!
ATLANTA – June 28, 2018 – Kabbage, Inc., a global financial services, technology and data platform serving small businesses, reports its 145,000-plus small business customers accessed over 300,000 loans during non-banking hours, reaching a record total of more than $1 billion in funding. In total, Kabbage has now provided access to more than $5 billion in funding to its customers across America. The non-banking hour analysis illustrates how Kabbage’s fully automated lending solutions remove the age-old hurdle of normal business hours by offering companies 24/7 access to working capital online.
“The findings illuminate the true around-the-clock nature of business owners,” said Kabbage CEO, Rob Frohwein. “While we wish small business owners could reclaim their nights and weekends, we built Kabbage to allow business owners to access funds on schedules convenient to them, not us.”
Economic Impact of $5 Billion
A new report from the Electronics Transactions Association (ETA), in partnership with NDP Analytics, a Washington, D.C.-based economic research firm, finds that for every $1 provided to small businesses via online lending platforms, including Kabbage, results in $3.79 in gross output in local communities. The study provides context to how the new milestone of $5 billion provided through Kabbage has helped to stimulate the U.S. economy.
After-Hours Lending on the Rise
The total number of dollars accessed through Kabbage outside of typical banking hours increased more than 6,000 percent between 2011 and 2018. The growth illustrates small business owners are increasingly comfortable accessing capital online, and they rely on the convenience of managing cash flow needs any time of day, particularly outside of open business hours for most banks. Non-banking hours in this analysis represents the local time between 6 p.m. and 6 a.m. on the weekdays, and the full 48 hours over the weekends.
Weekday vs. Weekend Lending
The majority of after-hour lending (64 percent) was accessed during the work week, totaling $754 million. The remaining 36 percent occurred on Saturdays and Sundays, totaling $429 million. The data is a nod to the dedication of business owners as more than one-third extend their work weeks to handle cash flow needs even on the weekends.
About Kabbage
Kabbage, Inc., headquartered in Atlanta, has pioneered a financial services data and technology platform to provide access to automated funding to small businesses in minutes. Kabbage leverages data generated through business activity such as accounting data, online sales, shipping and dozens of other sources to understand performance and deliver fast, flexible funding in real time. With the largest international network of global-bank partnerships for an online lending platform, Kabbage powers small business lending for large banks, including ING and Santander, across Spain, the U.K., Italy and France and more. Kabbage is funded and backed by leading investors, including SoftBank Group Corp., BlueRun Ventures, Mohr Davidow Ventures, Thomvest Ventures, SoftBank Capital, Reverence Capital Partners, the UPS Strategic Enterprise Fund, ING, Santander InnoVentures, Scotiabank and TCW/Craton. All Kabbage U.S.-based loans are issued by Celtic Bank, a Utah-Chartered Industrial Bank, Member FDIC. For more information, please visit www.kabbage.com.
