Category: Economics and Banking

APRA Conglomerate Supervision Framework (Level 3) Consultation

The Australian Prudential Regulation Authority (APRA) has today released for consultation clarifications to the governance and risk management components of the framework for supervision of conglomerate groups (Level 3 framework).

This includes clarifications to nine prudential standards, intended to become effective on 1 July 2017, and two prudential practice guides. These clarifications are not changes in policy position.

APRA released the Level 3 framework1 in August 2014, but considered it appropriate to wait until the findings of the Financial System Inquiry (FSI) and the Government’s response to FSI recommendations before settling on the final form of the conglomerate framework.

APRA has also announced today that it has deferred the implementation of conglomerate capital requirements until a number of other domestic and international policy initiatives are further progressed. These policy initiatives include:

  • APRA’s implementation of the FSI recommendation on unquestionably strong capital ratios for ADIs (FSI recommendation 1);
  • consideration of proposals in relation to loss absorption and recapitalisation capacity (FSI recommendation 3); and
  • proposed legislative changes to strengthen APRA’s crisis management powers (FSI recommendation 5).

Taken together, these initiatives will influence APRA’s final views on the appropriate requirements with respect to the strength, resilience, recovery and resolution capacity of conglomerate groups.

APRA Chairman Wayne Byres said: ‘The group governance and risk management requirements released today will further strengthen conglomerate groups, by enhancing oversight of group risks and exposures, and limiting potential contagion and systemic risks.’

‘While the timetable for the implementation of the conglomerate capital requirements has been extended, in APRA’s view this is the most appropriate course of action. To finalise the conglomerate capital requirements at this stage would introduce the possibility of needing to amend them within a few years, and this would be unnecessarily disruptive and inefficient for the groups directly affected.’

Given some time has passed since the prudential standards were released in August 2014, APRA is providing a six-week consultation period (until 13 May) for comments on the clarifications to the nine non-capital prudential standards. APRA also invites submissions on the two prudential practice guides by 27 May. As the consultation largely deals with issues of clarification, APRA is not expecting any changes to the underlying policy positions

While the clarifications to the cross-industry standards of Risk Management, Outsourcing, Governance, Business Continuity Management, and Fit and Proper largely relate to their application to conglomerates, these standards also apply to all authorised deposit-taking institutions (ADIs), general insurers and life companies. As such, APRA encourages all entities covered by these standards to review the clarifications.

The Level 3 framework, including prudential standards, prudential reporting forms, and draft prudential practice guides can be found on the APRA website at:

www.apra.gov.au/CrossIndustry/Pages/Supervision-of-conglomerate-groups-L3-March-2016.aspx.

1 www.apra.gov.au/MediaReleases/Pages/14_15.aspx

The Transport Sector Shakedown Has Real Consequences

In less than a week (4 April 2016), transport costs could rise significantly, thanks to  the Road Safety Remuneration Tribunal (RSRT) order which implements a minimum rate for contractor drivers through the Contractor Driver Minimum Payments Road Safety Remuneration Order. This sets a national minimum payments for contractor drivers in the road transport industry. A few key points about the order:

  • You will not be allowed to trade as either a sole trader or partnership you must use a company.
  • The company that owns the truck cannot be owned by either yourself, a family member or friend.
  • Driver rates from the RSRT apply only to “owner operators” not ASX listed transport operators, so an OO will have to charge a lot more.
  • Freight rates will have to go up at least 40% which will flow through to the entire economy.
  • The Road Safety Remuneration Tribunal (RSRT) will be around for 3 years before undergoing a review.

Many are saying that if the changes to minimum rates proceed, it will price smaller operators out of the industry, though the Transport Workers Union (TWU) is a vocal supporter of the Order. It says an increase in minimum rates will make the industry safer, and that’s worth paying for.

However, according to Business Spectator, some 35,000 people, mostly men, drive their own long-haul trucks. They have borrowed around $15 billion from Australian banks and other financiers to fund their vehicles. Most of the loans are also secured on the family home.

So, consider the implications.  First, the average cost of a truck is ~200k. The Personal Property Securities Register regime means that lenders would have the power to sell the asset at once – and if they cannot on-sell the vehicle, then its scrap value of ~$23 a tonne is the going rate. Then they can turn to the borrowers other assets.  We could see a spate of forced home sales.

Second, the finance sector has dedicated resources servicing the truck finance and insurance sector, plus there is a network of dealers, repairers, accommodation providers, and other services which will be impacted as demand falls for their services.

Third, who will still be on the road to provide transport services – the big guys, of course. But will they want to provide the range of services currently available? Possibly not. So will there be significant transport disruption?

At very least, what was an invisible cost is certainly going to become visible, but we wonder if the knock-on effects have really be thought through.

 

Household Portfolios in a Secular Stagnation World

A recent working paper from the Bank of Japan paints a concerning picture of how households react to an economy in stagflation and offers important insights relevant to other economies struggling with similar economic conditions. Their modelling suggests that persistently low interest rates damage the wealth of savers and compresses the wealth distribution. In a low interest rate/low growth environment, households tend to invest less in stocks and shares, or business ventures, and tend to hold more of their savings in cash deposits (even at low or zero rates). In other words, economic growth in suppressed further, in a feedback loop, thus sustaining stagflation for longer (and in our view tending to create conditions which become impossible to escape from – and cutting rates into negative territory will not offer an escape path).

Japan experienced a stock market boom (bust) in the 1980s (1990s) followed by a financial crises. The Bank of Japan’s response to the collapse of the bubble and subsequent deflation is an early version of the kinds of quantitative easing programs now pursued by other major central banks. Despite this policy stimulus, Japan has gone through two decades of low growth, low interest rates and low inflation.

In this paper we set out to understand the way these macroeconomic events affected Japanese household financial decisions.  This is interesting because the Japanese experience can provide some indication of how the developed world may be affcted by the onset of such a ‘secular stagnation’ episode characterised by persistently weak rates of inflation and economic growth.

Using data from the Japanese Survey of Household Finance (SHF) from 1981 to 2014, we start by documenting several key household portfolio facts that are unique to Japan. First, stock market participation is considerably lower than in the US: in 2014, 15.5% of all households participate in the stock market. Second, conditional on participation, stockholders hold a relatively small share of wealth in stocks as a percentage of total financial wealth, and a relatively large share of financial wealth in bonds and money. Third, whether one focusses on stockholders or non-stockholders, the share of wealth allocated to cash-like financial instruments is very high. For instance, even for stockholders the share of liquid bank accounts in total financial assets is between 20% and 40% (depending on the age group). Fourth, the gap between the
average wealth of stockholders relative to that of non-stockholders is much smaller in Japan than in the US.

What can account for these facts? To answer this question we rely on counterfactual analysis based on a structural, quantitative, life-cycle portfolio choice model with an explicit role for inflation and money demand. Understanding money demand is essential to match Japanese household portfolios given the strong prevalence of money-like financial instruments in Japanese portfolios. Portfolio choice models that incorporate monetary assets are not readily available. Instead, we make explicit the choice between money (that earns a zero nominal return) and other assets like bonds and stocks that earn the historically observed rates of return.

Given that our purpose is to develop a tractable, quantitative, model that can be confronted with the data, we introduce money demand through the shopping time approach. Specifically, we assume that money provides liquidity services: a higher amount of money lowers the cost from having to undertake a given transaction for consumption purposes. Everything else we assume is similar to recent life-cycle models that feature intermediate consumption and stochastic uninsurable labor income.

We calibrate the structural parameters of the model by matching key data moments from the Japanese Survey of Household Finances. Using fixed costs of stock market entry and preference heterogeneity, the calibrated model matches quantitatively limited stock market participation, and the share of wealth in money, bonds and stocks over the later parts of the life cycle. Understanding the portfolio choices associated with that part of the life cycle becomes extremely important in counterfactual analysis as most wealth accumulation takes place at that stage of the life cycle. Armed with this model we can now run counterfactual experiments to better understand the key drivers of Japanese household portfolios. Our counterfactual analysis can informatively address our key questions: why do Japanese households hold so few stocks and such high money balances?

Perhaps the single most widely discussed aspect of Japan’s economic performance since 1990 has been its persistently low level of inflation which has averaged close to zero for almost 15 years. It has been argued that a low level of inflation encourages investors to hold nominal assets (such as money) rather than real assets (such as equities). Our counterfactual experiments confirm this intuition. Had inflation in Japan averaged 2% (as in the US) stock market participation would have risen from 15.3% in the baseline simulation to around 20%. Moreover, the share of stocks in young and middle aged stockholders’ portfolios would have been significantly higher mainly at the expense of lower money holdings, while the share of stocks in elderly households’ portfolios would remain unaffcted . Therefore, low inflation plays an important role in keeping the share of money in Japanese household financial assets very high and contributes to crowding out stocks and bonds from household portfolios.

The second legacy of Japan’s long stagnation since 1990 has been its poor history of realized (and plausibly expected) stock returns as compared to other countries. In the baseline calibration, the mean equity premium for Japan is set to 1.8%. Increasing this to 4% (a typical choice in many life-cycle models calibrated to US data) raises the mean financial wealth to income ratio substantially and increases the stock market participation rate to 50%, a rate that is very close to the recent US experience.

Another important feature of the calibrated structural model is the relatively high cost of stock market entry. Reducing this fixed cost from our estimate (9%) to 5% (as estimated for the US in the literature) leads to an increase in the stock market participation rate from 15.3% to 43% indicating that frictions in equity market participation can be a very important factor in limiting Japanese households’ investment in equities.

The final interesting aspect of the Japanese household portfolio data is the puzzling low mean wealth of stockholders relative to non-stockholders at least in comparison with the US Survey of Consumer Finances (SCF). As before, low realized (and expected) stock returns play an important role in explaining this fact. Returns to capital (the stock market) have important long term implications for the wealth distribution. In the US, realized equity returns have been high, benefitting stock owners. In Japan, by comparison, realized stock returns have been low, and the wealth of those who own stocks relative to those who do not, has not risen to the same extent, generating lower wealth differences. This is especially interesting given the finite nature of the life cycle: one need not rely on an infinite horizon model to generate substantial differences in the wealth distribution. Moreover, these substantial wealth differences can arise even from a relatively low mean differential in expected stock returns (2%).

Note that papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank.

Negative interest rates – are there any positives?

From The Conversation.

Some say that economics is “the dismal science” and perhaps this is because many economic theories do not seem to work in practice. One contemporary example is negative interest rates, where instead of interest being added to their savings, individuals find that value is lost.

Negative rates have been introduced by some central banks worldwide. In theory doing so should both devalue their currency, making their exports cheaper and imports more expensive, and at the same time encourage consumer spending. It should also boost lending by financial institutions, as the value of capital being held by both individuals and banks is ever decreasing.

Sadly this theory when put into practice has been found wanting. The Bank of Japan introduced a negative interest rate of minus 0.1% in January 2016 and the yen subsequently increased in value compared to its competitor currencies. Indeed in 2016 the yen is the best performing G10 currency against the US$.

Similarly the Swiss National Bank flagged a negative interest rate of minus 0.25% to be introduced in January 2015, but the inflow of funds into the Swiss franc continued and the rate was finally reduced on its introduction to minus 0.75%, with the aim of discouraging capital inflows. However despite these moves the Swiss National Bank continued to accumulate foreign exchange reserves into the second half of 2015.

The European Central Bank (ECB) further increased its negative interest to minus 0.4%, on bank deposits held at the ECB in mid March 2016, as it attempted to manipulate downward the value of the Euro. The impact of this was undermined somewhat by allowing the European banks to borrow from their central bank at the same minus rate, depending on how much they lend to businesses and consumers. An initial dip in the value of the Euro when the minus 0.4% was announced was then followed by a sharp rise, as the implications of the whole package became clearer.

The aim of this is to lower the cost of borrowing for both consumers and corporations, as the banks borrow money from the ECB at no cost to them. This is intended to help stave of the threat of deflation in the eurozone by stimulating investment and consumption.

Recently published research from the Bank for International Settlement (BIS) found that in some cases savings accounts had been insulated from the impact of negative interest rates and that some mortgage rates in Switzerland had “perversely increased”. The conclusion from the BIS was then,“if negative interest rates do not feed into lower lending rates for households and firms, they largely lose their rationale”.

The Governor of the Bank of England has argued that if central bank policies are structured in ways that shield retail bank customers from minus interest rates, then they are unlikely to do much to stimulate domestic demand. Instead the main effect will be on exchange rates and this will result in the provoking of currency wars, as central banks attempt to out do each other in negative interest. Negative interest rates are intended to boost domestic demand by forcing banks to lend money out and encouraging consumers to both borrow and spend.

Consumer behaviour is unpredictable

Once again the “dismal science” comes up against the unpredictable behaviour of individuals and organisations, when they enter the territory of negative interest rates.

Take Japan in February 2016. One month on from the Bank of Japan’s decision to unleash negative interest rates, applications to join the loyalty clubs of Japanese department stores such as Mitsukoshi, Daimaru and Takashimaya were 100-200% higher than in the same month of 2015. The explanation is that these loyalty clubs offer a 5 to 8% annual bonus to their members, a far better return than any Japanese bank can offer, even if it encourages them to spend their money where they have their account(s).

So will negative interest rates continue to be used as a weapon from the central bank armoury, or will the unpredictable behaviour of consumers and investors undermine the intentions of the central banks?

If the weapon of negative interest rates does not work as expected on currency values or domestic consumption and investment, what else is there left to deploy to prevent deflation and a further slow down in economic actively? Economics indeed truly is dismal science.

Author: Steve Worthington, Adjunct Professor, Swinburne University of Technology

China Banks’ Profitability Pressures to Continue in 2016 – Fitch

Major Chinese banks’ results for 2015, which are due to be released next week, should show continued subdued earnings growth amid margin compression and asset deterioration, says Fitch Ratings.

Fitch expects these trends to continue in 2016, underscoring our negative sector outlook. Chinese bank profits are likely to decline this year unless authorities relax the minimum NPL provisioning requirement of 150%.

System-wide net profit for China’s banking sector grew by only 2.4% in 2015 as net interest margins declined by around 12bp to 2.53%. A combination of interest-rate cuts and worsening asset quality will continue to have an impact on profitability in 2016. The quarterly run-rate in reported NPLs decelerated in 4Q15, while we believe this is due partly to more substantial NPL write-offs/disposals towards the end of the year as banks struggled to meet their provisioning requirements.

The provision coverage ratio at state banks and joint-stock banks had fallen to 172% and 181%, respectively, on average by end-2015. The need to maintain this ratio above 150% will restrain earnings growth in 2016 – unless this ratio is relaxed. The floor could also encourage further under-reporting of NPLs.

Reports from local media today suggest that the authorities are considering lowering the provisioning requirement to 130%-140% for selected banks. Fitch believes a relaxation would run counter to a need for conservative provisioning at a time when asset quality is deteriorating and the concerns around the true level of NPLs in the system. That said, such changes in regulations in isolation should not have major rating implications as our analysis takes into account factors and performance trends beyond reported profitability figures.

The reduction in the interest burden for borrowers following successive rate cuts and other monetary loosening through 2015 should keep reported NPLs below 2% for most banks. The system-wide NPL ratio and “special-mention” loan ratio were 1.67% and 3.79%, respectively, at end-2015, up from 1.25% and 3.11% a year ago. The trend in overdue loans may paint a more interesting picture, though, as Chinese banks tend to report very similar NPL ratios despite varying levels of overdue loans.

Furthermore, changes in investment income or revaluation reserves may also signal deterioration in the quality of non-loan credit, especially in mid-tier banks. This may take the form of investment receivables representing a growing share in the asset mix.

Loss-absorption trends could be a key rating driver for most banks while profitability and asset quality weaken and pressure on provisioning increases. Major Chinese banks were key issuers of Additional Tier 1 (AT1) instruments in 2015, owing to increased pressure to shore up capital due to balance-sheet growth and slowing profitability. However, as long as assets continue to grow at a rapid pace and profitability remains subdued, there will be little underlying improvement in core capitalisation levels. Such capitalisation pressures continue to weigh on Fitch’s assessment of Chinese banks’ Viability Ratings, especially those of the mid-tier banks.

The expansion of non-interest income is likely to be a key earnings driver in 2015-2016, especially for mid-tier banks, driven by strong card and underwriting fees as well as the sale of wealth management products (WMPs). But Fitch views excessive reliance on WMPs as risky for banks, and a significant shift in the business towards this area could lead to increased credit and liquidity risks.

Basel Committee proposes measures to reduce the variation in credit risk-weighted assets

The Basel Committee on Banking Supervision today released a consultative document entitled Reducing variation in credit risk-weighted assets – constraints on the use of internal model approaches.

The consultative document sets out a proposed set of changes to the Basel framework’s advanced internal ratings-based approach and the foundation internal ratings-based approach. The IRB approaches permit banks to use internal models as inputs for determining their regulatory capital requirements for credit risk, subject to certain constraints. The proposed changes to the IRB approaches are a key element of the regulatory reform programme that the Basel Committee has committed to finalise by end-2016.

The proposed changes to the IRB approaches set out in this consultative document include a number of complementary measures that aim to: (i) reduce the complexity of the regulatory framework and improve comparability; and (ii) address excessive variability in the capital requirements for credit risk. Specifically, the Basel Committee proposes to:

  • remove the option to use the IRB approaches for certain exposure categories, such as loans to financial institutions, since – in the Committee’s view – the model inputs required to calculate regulatory capital for such exposures cannot be estimated with sufficient reliability;
  • adopt exposure-level, model-parameter floors to ensure a minimum level of conservatism for portfolios where the IRB approaches remain available; and
  • provide greater specification of parameter estimation practices to reduce variability in risk-weighted assets for portfolios where the IRB approaches remain available.

The Committee has previously consulted on the design of capital floors based on standardised approaches and is still considering the design and calibration. This would complement the proposed constraints discussed in this consultation paper. The final design and calibration of the proposals will be informed by a comprehensive quantitative impact study and by the Committee’s aim to not significantly increase overall capital requirements.

As set out in its work programme and in its reports to G20 leaders, the Committee is today releasing proposed measures to reduce excessive variability in credit risk-weighted assets. With the release of these proposals, the Committee has now consulted on all key elements of its post-crisis regulatory reform programme. Stefan Ingves, Chairman of the Basel Committee on Banking Supervision and Governor of Sveriges Riksbank said “Addressing the issue of excessive variability in risk-weighted assets is fundamental to restoring market confidence in risk-based capital ratios”. He added that “the measures announced today largely retain the use of internal models for the determination of credit risk weighted assets, but with important safeguards that will promote sound levels of capital and comparability across banks”.

The Committee welcomes comments from the public on all aspects of the proposals described in this document by Friday 24 June 2016. All comments will be published on the Bank for International Settlements website unless a respondent specifically requests confidential treatment.

Why Are Credit Card Rewards Points Being Devalued?

Recently several banks have quietly reduced the value of points within their rewards programmes. So whats going on?

For example, CBA will decrease the rate at which Diamond and Black card holders can earn a Qantas Point from 2 to 2.5 reward points, a 20% loss of value.

ANZ has reduced its rewards on many of its cards, with its Visa version dropping from 2 Points per $1 spent to 1.25 ANZ Reward Points per dollar spend; their Platinum American Express earn rate is falling from 3 to 2 points per dollar spent and their Platinum Visa earning 1 ANZ Rewards Point per $1 rather than the previous 1.5 points per dollar.

They are not alone. Virgin Money says from April 1 2016, the rate at which cardholders can earn Velocity Frequent Flyer Points will be reduced by up to 33%, from one Point per dollar, to 0.66 Points while the Points cap will remain at $1,500 per month. Velocity High Flyer cardholders will also see a drop from 1.25 Points per dollar, to one Point per dollar with a new points cap of $10,000 per month.  They also removed rewards from BPay payments (whilst offsetting purchases from Virgin).

Citibank, effective 18th March,  lowered Rewards points per A$1 to 1.5 and from uncapped to the first $20,000 spent in each monthly statement period. Credit card BPAY payments no longer earn points and Citibank’s overseas transaction fees rose to 3.4%.

There are two factors in play. First, the interchange fees (that’s the interbank fee for payment processing) has been examined by the RBA, but this is at the discussion stage, and in December 2015, the RBA said

Given the complexity of issues involving interchange fees and companion cards, it is unlikely that the Board will take any formal decision on changes to the interchange standards before its May 2016 meeting … In the case of surcharging, depending on consultation responses, it is possible that the Board may be in a position to make an earlier decision on changes to its standards.

The RBA consultation paper noted that lower interchange fees may follow.

No credit card interchange fee would be able to exceed 0.80 per cent and no debit interchange fee would be able to exceed 15 cents if levied as a fixed amount or 0.20 per cent if levied as a percentage amount.

They also said:

The reduction in interchange fees, especially the cap on the highest credit card rates, is likely to result in some reduction in the generosity of rewards programs on premium cards. It is likely, however, that there would be only limited changes to other elements of the credit card package (e.g. interest rates, interest-free periods). Similarly, the reduction in the high percentage debit/prepaid interchange categories may be likely to result in some reduction in rewards generosity for some of the new debit/prepaid rewards cards. There are unlikely to be other material changes to arrangements for transaction accounts.

We discussed credit card economics in this earlier post and the recent Senate Inquiry into Credit Cards made 11 reform recommendations.

The writing is on the wall, and interchange fees, especially for premium cards, are likely to drop.

Second, with banks experiencing margin pressure, fiddling with card reward programmes is a cheap way of growing margins. The intrinsic complexity of the reward programmes (and the fact that not all card holders cash out their rewards anyway) means that changes are so opaque as to be unnoticed by many.

Remember also that credit card interest rates have not followed the target cash rate down.

The truth is, unless you are a devoted points collector, and spend the time to calculate the value (both earn and burn) of the reward points you may gain, you will simply not react to point devaluations. And the RBA interchange intervention provides perfect cover for reducing the value of points.

Expect more cuts in coming months, hikes in some fees and charges and changes to the terms and conditions for rewards points.

ANZ Flags Higher Resource Sector Credit Charges

ANZ today provided an update on the credit environment reflecting the evolving position with a small number of Australian and multi-national resources related exposures. Consideration of these exposures formed part of ANZ’s first quarter trading update released on 17 February when the bank disclosed the total Group credit charge was anticipated to be a little above $800 million for the first half of 2016. Recent developments with these Institutional exposures however mean the total Group credit charge for the first half is expected to increase by at least $100 million.

Acting Chief Financial Officer Graham Hodges said: “While the overall credit environment remains broadly stable, we are continuing to see pockets of weakness associated with low commodity prices in the resources sector and in related industries. “This is a challenging part of the cycle for these customers with implications for the banking sector as individual circumstances evolve. We are continuing to monitor ANZ’s exposures carefully and we will keep investors up-to-date with any changes to the credit outlook,”

ANZ’s financial results for the 6 months ending 31 March will be announced on 3 May 2016.

ANZ has about 1% of its commercial book in this sector, whereas CBA, the most exposed, is about double that. So the question is, does this announcement signal the potential for further downgrades down the track, and across the industry; and when taken with rising consumer losses (e.g. WBC indicated +$25m), are risks to future bank earnings correctly calibrated?  It probably at very least confirms bad and doubtful debt provisions, which were cut by some in the last results season, will rise in the foreseeable future.

Brokers key to success for new market in 2016

From Australian Broker.

Mortgage refinancing will drive the market in 2016, according to a new report, and brokers are in the prime position to capitalise.

According to the J.P. Morgan Australian Mortgage Industry Report (Vol 22), produced in collaboration with Digital Finance Analytics, there has been a noticeable change in who has been transacting, with a clear switch from investors to refinancers.

Investor demand has been reducing driven by lower expectations of house price appreciation and a tougher regulatory outlook. Investors have seen the sharpest reduction in intention to transact, reducing from around 50% to 40% for solo investors and around 75% to 60% for portfolio investors in 2015.

However, with interest rates still at record lows, the number of borrowers intending to refinance has been continuously increasing. Those looking to refinance has risen from 10% in early 2015 to 35%, according to the report, as they look to establish better terms on their mortgage or release equity for other investments as house prices have risen.

J.P. Morgan banking analyst Scott Manning says brokers will be key to success in capturing the surge of refinancing activity this year, with around 75% of refinancers expecting to use brokers versus other channels.

According to Manning, we are already starting to see the major banks adapt. For example, ANZ has been increasing its broker usage while simultaneously decreasing its branch footprint – a trend which he says will continue across the banking landscape over the next five years.

“Certainly brokers are not only a high proportion of flow but they are a significantly higher proportion of that of new bank business. They are very important for banks to try and grow their book basically. So I think [brokers] are here to stay and I think that proportion will continue to improve over time,” Manning told Australian Broker at the release of the report.

“If you look at what the banks of doing, they are reducing the size of the footprint in terms of square metres by moving banks. They are using smart ATMs where you can bank cash and bank deposits without going into a branch. They have kiosks with after-hours access where you can get coin change for SMEs.

“They are migrating their footprint off branches already. I think ANZ has just been a bit more aggressive on that path… We can see that in Westpac as well. Their branches were down last year in particular and they have renegotiated the new deal with Australia Post to do more of the day-to-day banking in remote areas through the post office.”

Joint DFA and JP Morgan Mortgage Industry Report 22 Released Mar 2016

The March 2016 edition of our joint mortgage industry report used data from the Digital Finance Analytics household surveys to discuss the  evolution of the home loan market.

jpm-mar-2016Specifically, volume 22 focuses on three important issues

  1. Building A Picture Of Credit Demand – We consider the changing inputs into housing credit growth over time, initially through a model of household gearing tolerance, and more recently through the transition from heightened investor activity towards increased owner occupied re-financing.
  2. Taking A Closer Look At Investors – Given that the investor market (largely centered around Sydney and Melbourne) has been a key area of focus of banks, regulators and politicians, we assess four areas of potential risk in greater detail.
  3. Implications For Australian Banks – It is clear that Australian banks will need to target re-financers going forward as a key area of focus – not only to maintain market share, but also to offset the ongoing amortisation headwind from lower rates. Accordingly, target market identification and distribution strategies will hold even greater importance.

Note that due to regulatory compliance, the full report is only available from JP Morgan. However, the underlying survey data and analysis is available on request from DFA via the Property Imperative. This publication contains considerably more detailed information than was used in the final joint report.