Australia Rises In Global Alt-Lending Ranks

From Pymnts.com

Australia is now the Asia Pacific region’s second-largest alternative finance market, largely due to a favorable regulatory climate, according to new KPMG analysis.

The Australian market is quickly becoming a hotbed of alternative lending, and new analysis from KPMG suggests it has risen up in the ranks.

According to a new report from KPMG’s Cambridge Centre for Alternative Finance and the Australian Centre for Financial Studies, Australia could now be the Asia Pacific region’s second-largest alternative lending market, close behind China. News reports in the International Business Times on Friday (Sept. 22) said that a survey of 600 online alternative finance firms across the Asia Pacific found that Australia’s market grew 53 percent in the last year alone.

A key driver of that growth is favorable government policies, researchers said, with regulators around the world exploring how to ensure borrower protections without stifling innovation. About two-thirds of survey respondents said Australia’s regulatory climate is appropriate for the alternative lending industry.

While alternative finance remains a small portion of the overall lending market, the report also found that the Asia Pacific region is experiencing significant overall growth in this space.

China, though, is the clear winner, with its AltFin market accounting for 99.2 percent of the total Asia Pacific market, reports said.

The Australian government may be looking to facilitate growth of the alternative finance space, but research released in June suggested the industry has another hurdle to overcome: awareness.

Data from Moula and the research and consulting firm Digital Finance Analytics, outlined in their Disruption Index report, found there is room for the industry to gain traction by increasing visibility among small business borrowers.

“There is still a certain air of skepticism about non-traditional forms of lending,” said DFA Principal Martin North in an interview with Australian Broker at the time. “So, SMEs who need to borrow tend to still go to the normal suspects. They’ll look to the banks or put it on their credit cards.”

He added that this means the alternative finance industry has to work harder to boost awareness and promote education.

“I think the FinTech sector has a terrific opportunity to lend to the SME sector, but they haven’t yet cracked the right level of brand awareness,” North continued. “Perhaps they need to think about how they use online tools, particularly advertising, to re-energize the message that’s out there.”

ANZ tightens up on apartment lending

From The Advisor

ANZ has announced that it will be implementing new restrictions on some loans for residential apartments, units and flats in Brisbane and Perth.

Effective Monday, 2 October, there will be a maximum 80 per cent loan-to-value ratio (LVR) for owner-occupier and investment loans for all apartments in the following inner-city Brisbane postcodes:
– 4000
– 4006
– 4010
– 4011
– 4014
– 4102
– 4171

There will likewise be a new restriction on investment lending for apartments in some areas of inner-city Perth.

Also from 2 October, there will be a maximum 80 per cent LVR for investment loans for apartments in these Perth postcodes:
– 6000
– 6004
– 6104
– 6151

These policy changes apply to all apartments in affected postcodes, including off-the-plan and non-standard small residential properties (≥40m2 & <50m2) valued at less than $3 million.

Granny flats are not impacted by this change.

ANZ has told brokers that applications submitted prior to 2 October 2017 will be assessed under the previous policy (as will applications that have been granted an extension prior to Monday, 6 November 2017).

A spokesperson for the bank commented: “This update for a handful of Brisbane and Perth locations is part of our ongoing efforts to ensure we are lending responsibly and in consideration of all our regulatory responsibilities.

“We regularly look at a number of factors in relation to residential apartments to make sure we are meeting our responsibilities, including supply and demand, rental yield, vacancy rates and location.”

The moves come amid increasing concern of oversupply in apartment building, with several developers making headlines recently for being left with unsold apartments.

Analysts at BIS Oxford Economics suggested in June that new apartment completions in Australia that have been largely bought off the plan by investors will hit a record this year and “most cities will find that tenant demand will not be sufficient to support rents and consequently values”.

According to the report, the whole of Australia, barring NSW which is “heavily undersupplied”, will be in oversupply over the next three years, with the unit market likely to face more challenges than the house market as a result of APRA constraints on investor lending.

Further tightening could be on the horizon

Speaking to The Adviser, Ranjit Thambyrajah, managing director of Acuity Funding, suggested that there could be further tightening by ANZ in the coming months.

The commercial broker said: “Perth has been slowing down and slow for quite a while now and Brisbane is heading that way quite quickly. ANZ, in particular, pulled out of lending for both those states for development a little while ago, so I think [this recent change] is just following on from that.

“I think it’s probably going to be more than those areas, actually. I think they are going to face difficulty in other areas as well, in terms of oversupply.”

He explained: “We’re in the business of funding the developments and we are experiencing a lot of difficulty in funding things in Queensland, particularly with the ANZ bank, and we have the same situation in WA. So, they perceive the oversupply as going to continue for a while, but currently the areas that they are quoted on are the ones that they are experiencing most oversupply in.”

While Mr Thambyrajah said that other areas experiencing oversupply of apartments, such as Melbourne and some areas of Sydney, will “start feeling more tightening as well”, he said that he is not overly concerned by the changes.

“Just because one bank is not lending does not mean others are not. It really depends on their prudential limits to the area and also the blend of their book in terms of APRA guidelines as well.

“So, I’m not concerned by this at all. I think it just changes from month to month and bank to bank.”

ANZ also tightened their underwriting standards according to MPA by issuing a Customer Interview Guide..

Yesterday ANZ issued a Customer Interview Guide which specific which topics brokers should discuss with home and investment loan borrowers.

“We expect brokers to use a customer interview guide (CIG) to record customer conversations as a minimum moving forward,” noted ANZ “while it is not required to submit the CIG with the application, it should be made available when requested as a part of the qualitative file reviews.”

Banking Misdirection and the BEAR

According to Wikipedia, Misdirection is a form of deception in which the attention of an audience is focused on one thing in order to distract its attention from another. Managing the audience’s attention is the aim of all theatre; it is the foremost requirement of theatrical magic.

An article From The New Daily. suggests the banks employed this tactic by using Sundays announcements about the end of ATM fees to distract attention from the BEAR draft legislation released the previous Friday.  We had already covered the BEAR on our blog but more generally I agree the potential coverage was diluted thanks to the ATM news.

It is worth looking at the limitations of BEAR, especially as conduct relating to consumer outcomes is excluded, the focus on the rules relate to prudential matters. In the UK, who have similar measures on place, they also included consumer related bad practice.  The rules should have similar reach here, because this is actually the central issue banks need to address.

Will BEAR help consumers?

According to consumer advocate CHOICE and the Consumer Action Law Centre, not really. In a joint submission to the government, the two groups pointed out that these rules only applied to prudential matters – that is, matters relating to systemic financial integrity. They did not apply to consumer matters.

The difference between the two is best understood as follows: the global financial crisis was essentially a prudential crisis. Overseas banks were lending more than they could afford, and (to put it simply) they ran out of money.

The CBA financial advice scandal, meanwhile, was a consumer issue. It involved bank representatives doing the wrong thing by customers.

CHOICE and the Consumer Action Law Centre urged the government to imitate similar laws in the UK, and extend the BEAR to consumers. That would mean bringing in the consumer watchdog ASIC as well as the prudential watchdog APRA.

But the draft legislation reveals the government has not done this. It has also crafted loopholes that allow both itself and the regulator freedom to relax the rules in special (unspecified) circumstances.

These moves suggest the government isn’t quite as tough on banks as it would have the public believe.

Auction Volumes Increase Across All But One of the Capital Cities This Week

From CoreLogic.

Auction volumes increase across all but one of the capital cities this week, returning a preliminary clearance rate of 70.7 per cent across 2,759 auctions.

Auction volumes have increased across all but one of the capital cities this week with a total of 2,759 homes taken to auction, making it the busiest week for auctions since the end of May. So far, 2,226 results have been reported to CoreLogic, returning a preliminary clearance rate of 70.7 per cent, up from last week’s final clearance rate of 66.7 per cent across 2,510 auctions.

The final clearance rate across the combined capital cities has been holding around 66 per cent for the last 3 weeks so it will be interesting to see if this is the case again on Thursday once the remaining results have been collected. One year ago, the final auction clearance rate was recorded at 75.4 per cent and there were 2,480 auctions held across the capital cities.

2017-09-25--auctionresultscapitalcities

CBA introduces new IO ‘simulator’

From Australian Broker.

The Commonwealth Bank of Australia (CBA) has announced a compulsory new digital tool, the Interest Only Simulator, which will be incorporated into its third party lending process.

The simulator will be accessible through CommBroker and will show customers the differences between IO and P&I repayments as well as the financial impacts over the life of the loan for both types of loans. It will be mandatory from 6 October for all customers applying for a new interest only loan.

“The new tool will make it easier for our brokers to have conversations with customers about their needs and their loan options. It will also help ensure customers understand what type of loan is best for them and their situation,” a CBA spokesperson told Australian Broker.

A compulsory Customer Acknowledgement Form will also be included in the simulator. This will be submitted with all interest only home loan applications to ensure that those payments meet the client’s needs.

Brokers are required to provide customers with a copy of this form as a record of the discussion. This can be done electronically as a pdf attachment via email.

“We encourage our customers to choose principal and interest repayments to help them build equity in their home, where this meets their needs and objectives. Customers who currently make interest only payments are encouraged, where they are able, to switch to principal and interest repayments,” the spokesperson said.

ABA Ups The Ante On SA Bank Tax

 

The Australian Bankers’ Association’s new website – jobsnottaxes.com.au – launched today, invites the people of South Australia to email local members of Parliament to take a stand against the tax.

“South Australia needs jobs to grow its economy, not new taxes that will undermine this objective,” ABA Chief Executive Anna Bligh said.

“Over the past 10 years, full time jobs in South Australia grew by an average of 0.2 per cent per year, compared with 0.9 per cent across Australia.”

A new statewide Galaxy poll (Galaxy surveyed 801 people in South Australia between 8 – 12 September 2017 via telephone and online) conducted this month shows that 52 per cent of South Australians oppose the tax compared with only 38 per cent who support it. Half of people surveyed believe the tax would negatively impact on jobs in the state.

The website also features new television ads with members of the South Australian community urging the Government to dump the tax and focus on jobs and growth.

 

“In 2016, the five banks impacted by the proposed tax paid around $1.5 billion in dividends to shareholders in South Australia and lent $10 billion to South Australians to buy their own home,” Ms Bligh said.

“This is a tax on all South Australians and will impact shareholders, customers and bank employees,” she said.

 

 

CBA’s Sale of Life Insurance Business is Credit Positive

From Moody’s

Last Thursday, Commonwealth Bank of Australia announced that it had agreed to sell its Australian life insurance business, CommInsure Life,7 and its New Zealand life and health insurance businesses, Sovereign,8 to Hong Kong-based insurer AIA Group Limited for AUD3.8 billion ($3.0 billion). The transaction is credit positive for CBA because it will boost its capital adequacy. The deal also is credit positive for AIA because it will strengthen the insurer’s franchise and distribution in Australia and New Zealand with only a modest increase in financial leverage.

The sale price equals a price/book ratio of approximately 1.7x these businesses’ net tangible asset as of June 2017. The two companies also announced a 20-year bancassurance distribution agreements in both markets.

The announced sale comes at a time when mortgage risk weights and capital requirements are rising for Australian banks. In July 2017, the Australian Prudential Regulation Authority announced stricter capital requirements for Australian banks, including that Australia’s four largest banks, including CBA, raise their common equity Tier 1 (CET1) ratios to 10.5% by 1 January 2020.

These sales will put CBA in a strong position to meet this target. As of June 2017, CBA’s CET1 ratio was 10.1%. CBA estimates that the sale will release approximately AUD3 billion of CET1 capital, raising the bank’s fiscal 2017 (which ended 30 June 2017) CET1 ratio by approximately 70 basis points on a pro forma basis. The bank is currently dealing with allegations of non-compliance with Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act that could result in a financial penalty that, depending on its size, could erode the bank’s capital position.

 

For AIA, the transaction will strengthen the insurer’s franchise and scale in Australia and New Zealand, where it will become those market’s largest life insurance provider. The 20-year bancassurance distribution agreements with CBA and ASB Bank Limited, which is CBA’s New Zealand subsidiary, will complement AIA’s distribution in these two markets, where AIA has traditionally focused on group business and the independent financial adviser channel.

AIA’s purchase will increase its financial leverage, although it will be small relative to its capitalization. The net cash outlay for the transaction will be only AUD2.1 billion ($1.7 billion), after taking into account reinsurance arrangements, and AIA’s strong capitalization should be able to easily absorb that amount. As of May 2017, AIA reported total equity attributable to shareholders of $38.3 billion and a solvency ratio of 427% at its main operating company, AIA Company Limited (financial strength Aa2 stable). AIA expects the transaction to be earnings accretive in the first year after deal completion.

From a strategic perspective, the transaction aligns AIA and CBA with their respective strengths in insurance product origination and distribution. AIA already has a strong track record in Australia and New Zealand and has strong capabilities in group-wide risk management, claims management and product development, resources on which it can leverage to further enhance its newly acquired businesses

… As Does Westpac

All the major banks have removed foreign ATM fees. The ABA welcomed the move.

Statement from Anna Bligh, Australian Bankers’ Association Chief Executive:

“The ABA welcomes the announcement from the major banks today to abolish ATM fees.

“It’s a boon for customers and makes banking more affordable for everyday Australians.

“This is the latest in a suite of initiatives by banks to create better products and services for customers and boost customer choice, including reducing interest rates on credit cards and offering fee-free transaction accounts.

“A competitive banking system is good for customers and good for the sector.”

NAB Joins the ATM Fee Cuts

NAB has today announced it will remove ATM withdrawal fees for everyone using any of its NAB ATMs around the country.

Already, NAB customers using NAB ATMs incur no cash withdrawal fee.

“We’re pleased to now extend this so that all Australians, regardless of whether they bank with NAB or not, can use any of our ATMs and not be charged a cash withdrawal fee,” NAB Chief Customer Officer of Consumer Banking and Wealth, Andrew Hagger, said.

“This is a good outcome for customers. We know it has been frustrating for them to be charged to withdraw their own money from an ATM, and the change we are announcing today will benefit millions of Australians.

“At NAB, we’re proud of our track record of making banking fairer over many years, and we will always look at how we can improve the experience and services we provide customers.”

Since 2009, NAB has led the industry by removing many of the fees and charges that annoy customers the most, and NAB remains the only major bank to have a transaction account with no monthly account service fee, saving customers around $5 every month.

“NAB’s commitment is to back our customers by continuing to listen to them, and respond to their concerns and needs so we can be a better bank,” Mr Hagger said.

ANZ Also Will Abolish ATM Fees

ANZ today announced it would remove fees for all non-ANZ customers using its fleet of automatic teller machines anywhere in Australia. The change will impact non-ANZ customers who are currently charged a $2 fee when they use an ANZ ATM.

ANZ customers are not currently charged when they use one of ANZ’s more than 2,300 machines. ANZ Group Executive Fred Ohlsson said: “While we had been actively working on how we provide fee free ATMs for our customers, we have decided to remove these fees all together from October.

“We know ATM fees are one of the most unpopular and while our customers have benefitted from our network of ATMs across the country, this is another example of acting on customer feedback as well as genuine reform from the industry,” Mr Ohlsson said.

The change will be implemented in early October 2017.