Tag: MPA

SMEs continue to struggle with cashflow

Australian SMEs are still suffering as 70% of brokers agree that cashflow is “definitely more” of a problem to small businesses now compared to 12 months ago. Ninety-two percent of them believe finance is “more difficult” to access after the Banking Royal Commission, according to a recent poll of the broking community commissioned by B2B finance provider Apricity Finance; via MPA.

With the increased need of finance worsened by the increased challenge of accessing it from tier one banks, the royal commission almost created a “perfect storm scenario” for small businesses, Apricity Finance CEO Linden Toll said.

Working closely with finance brokers, Toll and his team believe brokers have “a unique view on businesses”.

“Like the canary in the coalmine, the trends that brokers see across the SME sector can often be indicative of longer-term problems,” he said.

The research also revealed the broker community found businesses with a yearly turnover of less than $5m, which is the majority, are the ones likely to face cashflow problems. According to Toll, 68% of survey respondents believe that those problems are mainly caused by late invoices and long invoice payment terms.

“Small businesses are hugely important to the Australian economy and employ more than four and a half million Australians, more than those employed by the whole of the ASX 200,” he added.

The findings of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) in their report in April 2019 echoes Toll’s sentiment. The ombudsman’s head and ex-chief minister for the ACT Kate Carnell stated in the report that they’ve “received over 2,400 surveys from small and family businesses across the country raising issues on late payments and long payment times”.  

“Where large corporations delay payment to their small business suppliers, small business cash flow is unpredictable and presents significant difficulties in their ability to access and service finance. Cash flow is king to small business — poor cash flow is the primary reason for insolvency in Australia,” Carnell said.

Linden and his team recommend that small businesses that think cashflow is becoming an issue to act early and take the needed steps to make sure they don’t fall into the 40% of businesses that don’t reach their fourth year

APRA gets $58m funding boost to enhance supervision

The government has announced that it will boost APRA’s funding by $58.7m and extend the appointment of its chair Wayne Byres despite the criticism the regulator copped from the royal commission, via MPA.

“The new funding will allow APRA to reinforce the resilience and soundness of our financial system at a time of significant reform,” Treasurer Josh Frydenberg said in a statement.

Besides supervising several industries, APRA’s current agenda includes the implementation of the new Banking Executive Accountability Regime (BEAR) and monitoring and targeting issues in the housing market to retain stability, which it previously dealt with by introducing speedbumps on interest-only and investor lending.

The new funding will be provided over four years to enhance APRA’s supervision across regulated industries and its ability to identify and address new and emerging risk areas, such as cyber, fintech and culture. It will also allow APRA improve its data collection capabilities and provide for a review of its enforcement strategy.

Frydenberg said Byres’ reappointment as chair for another five years was “important for stability during this time of significant reform in Australia’s financial system”.

In the royal commission’s interim report, however, it asked whether the regulatory architecture needed to be changed, and questioned whether APRA’s regulatory and enforcement practices were satisfactory.

“APRA is obliged to look at issues of governance and risk culture through the lens of financial system stability. Understood in that light, APRA’s lack of action in response to the widespread occurrence of the conduct described in this report may, perhaps, be more readily understood,” the report said.

But, the commission said that didn’t excuse APRA from not taking any steps to identify the major banks’ deficiencies in governance and culture as they became increasingly apparent.

“Regulatory complexity increases pressure on the regulator’s resources and may allow entities to develop cultures and practices that are unfavourable to compliance,” the commission wrote.

Prior to this latest funding injection, APRA’s estimated budget for 2018-19 was $682m, according to the royal commission

As property market softens, arrears are expected to rise.

Mortgage delinquencies have remained broadly stable over the year, but are expected to increase moderately as a result of the property market slowdown, according to Moody’s Investors Service, via MPA.

While the agency said it expected only a slight uptick in arrears over the coming year, it projected that NSW and Victoria would be the most affected, largely because of high household leverage in these states and the impact of interest-only loans switching to P&I repayments.

Keeping arrears contained, however, is completely reliant on solid macroeconomic conditions. If there is strong job growth and stable employment, borrowers will be more able to make their repayments.

It found that the proportion of residential mortgages that were more than 30 days in arrears was 1.58% in May 2018, compared to 1.62% in May 2017. As expected, delinquency rates were lower in capital cities. The most affected regions were Western Australia and Queensland, where borrowers have suffered from a lack of mining and resource-related jobs and drought.

However, another ratings agency, S&P, struck a more cautionary tone in its latest arrears report. It found that “there has been an ongoing increase in home loans that are more than 90 days in arrears”, which it defines as advanced.

“Loans more than 90 days past due reached 0.74% in August, making up around 54% of total arrears. This is up from 42% five years ago.”

The regional bank mortgage originators reported the highest percentage of loans in arrears in August, at 1.33%, followed by the major banks, at 0.99%. This heightened pressure regionally echoes Moody’s findings.

To re-cap, the number of loans in the “advanced stages of arrears” has to do with geographic pressures, repayment shock from the IO loan transition, general mortgage stress, and out-of-cycle rate rises, S&P said.

Likewise, the agency said it expected falling house prices to put further pressure on mortgage arrears in coming months, especially among borrowers with higher loan-to-value rations who haven’t had time to build up equity or accumulate mortgage buffers.

“This could tip some borrowers into a negative equity position, which would significantly impede their refinancing prospects in the current lending environment. Across all RMBS loan portfolios we expect borrowers with LTV ratios of 80% and higher to be most at risk. These loans account for around 13% of RMBS loan portfolios,” S&P said

Chinese real estate investment in Australia drops by nearly 30%

While Asia and Europe enjoyed the highest Chinese investment growth in 2017, Australia and New Zealand experienced significant drops, according to Juwai.com’s Chinese Global Property Investment Report. The report provides an estimate of actual Chinese investments in Australian residential and commercial property; via MPA.

According to the report, total Chinese property investment in the two countries fell by 23.2%, from $23.9bn to $18.4bn. Although Australia recorded the largest share of the decline, Chinese investment in the country still remains substantial. Chinese purchases of residential and commercial properties in Australia dropped by 26.8%, from $24bn to $17.4bn.

In a statement, Juwai.com CEO and director Carrie Law said their estimate of Chinese investment in Australian property is based on industry data that helped them calculate the roughly $100bn-worth of new dwelling sales in the country last year.

“About one-quarter of those went to foreign buyers, and that Chinese buyers accounted for about three-quarters of foreign buyer spending. That yields about $19.4bn (US$14.1 billion) in estimated Chinese residential investment,” Law said.

Law attributes last year’s reduced Chinese investment to capital controls, restrictions on bank financing to offshore buyers, and to new foreign buyer taxes and restrictions. She expects moderate growth this year, “which is in line with Beijing’s goal of managed, rational overseas investment”.

Chinese buyers still consider Australia to have long-term value despite the higher stamp duties, Law added. The majority of Juwai’s residential buyers are purchasing properties in the country because they have kids studying or working there, or because it’s a place they plan to visit regularly or retire in.

“Australia offers a stable environment, safety, quality educational institutions, and high quality of life. Both Sydney and Melbourne rank in the top five most liveable cities in the world,” Law said

The report also showed that other than the U.S., Hong Kong, and Japan, Australia was China’s top destination for commercial property investment. Overall, Chinese international property investment rose to $65.9bn, with Australia, U.S., Hong Kong, and Malaysia receiving the most investment.

“Sources like KPMG suggest that Chinese commercial real estate investment accounts for one-third of all Chinese corporate direct investment in the country. Political tensions between the two countries have a greater impact in creating uncertainty with corporate commercial real estate investors than they do with individual investors buying residential property for their own use,” Law said.

Brisbane market continues slump amid lack of attractions

From MPA.

Brisbane is no longer the leading property investment choice as it used to be, according to property market research firm Propertyology.

The latest market data shows that despite being the top choice of experts for a few years now, the city shows underwhelming results, with its dwelling prices increasing by just 1.2% over the year until July. And there are several reasons for this slow market performance.

According to Propertyology head of research Simon Pressley, the Sunshine State capital continued “to post less than stellar results because the wider economy is not doing enough of the heavy lifting”.

“Brisbane has some good property market fundamentals, but we have to go way back to 2007 to find the last time that its property market produced double-digit price growth – coincidentally that’s also the year that Peter Beattie retired from his post as State Premier,” Pressley said in a statement.

Brisbane’s long-running problem with its property market is a reflection of the city’s enormous potential but lack of boldness and clear direction, he said. And it doesn’t help that Queensland had four premiers in just 10 years.

Lack of attraction

Pressley said the core of Brisbane’s property problem is its lack of significant attractions to draw national and international visitors, who generally go straight to the Gold or Sunshine Coasts when they arrive. Brisbane has been attracting fewer new international visitors compared to Sydney and Melbourne since 2012.

Brisbane gravely needs an iconic landmark to energise its economy, according to Pressley. “The Brisbane River is no Sydney Harbour and the Story Bridge is no Golden Gate,” he said. “Brisbane is fast losing its relevance, so industry, community, and political leaders all need to put their big-boy pants on, get bold, and begin behaving like Brisbane is a world-class city, not a big country town!”

“Like every other city, Brisbane has its liquorice allsorts urban renewal projects, but the last

ground-breaking transformation completed was South Bank in 1992,” Pressley said. However, he added that there are projects coming in next decade, such as Queen’s Wharf, the Brisbane Metro, and a number of hotels and commercial office towers.

“The question is, will these be enough to kick-start the Brisbane property market?” Pressley said.

MFAA responds to brokers’ bad press

From MPA.

In a letter to its members, the Mortgage and Finance Association of Australia (MFAA) has highlighted the positive impact brokers have on the lending market, quoting new data that confirms a customer satisfaction rate of 92% and a reduction in complaints of 78%.

The industry data, based on figures released last week, highlights a series of positive trends which MFAA CEO, Mike Felton, will present to both the government and ASIC.

“While consumers benefit from the service brokers provide, we continue to be criticised as though the broker channel is systemically rotten. So, we decided to examine additional real data for answers, to bring an accurate presentation to government and to ASIC. The numbers don’t lie,” Felton said.

According to the figures, complaint volumes to major bodies have declined sharply over recent years. While brokers represent 91% of Credit and Investment Ombudsman (CIO) membership currently, complaints against them account for only 6.1% of the total volume received last year – a near 50% reduction on 2008 figures.

Further, brokers account for 1% of complaints to the Financial Ombudsman Service (FOS) and ASIC has made 15 broker convictions between 2010 and 2017, representing one in 9,000 brokers per annum.

Assessing its own complaints data for 2008 to 2017, consumer complaints declined 78% to what MFAA terms a “negligible 55 per year”. The body expelled, cancelled or suspended the membership of 75 brokers over the same period. In 2017, there was less than one consumer complaint for every 21,000 new contracts and the consumer Net Promoter Score currently stand at +70, with customer satisfaction at 92%.

“If our industry was systemically rotten you would have complaints and arrears going up, competition and consumer support declining and you would have interest rates rising. We have a very different picture,” Felton added.

In the first three months of 2018, the broker share point increased 1.7% year-on-year, from 53.6% to 55.3%. Further, in 2017, the major lender paying the highest commission received the lowest market share of Smartline’s business among the four majors.

“It’s a phenomenal performance,” Felton continued.

The message, delivered first hand by Felton during the association’s recent roadshows, also comes in response to recent bad press that has emerged during the royal commission, although he maintains it is not a direct response.

“The first thing to say is that this is not an attack on anybody. This is to say the rhetoric and debate in the public realm has been, of late, predominantly negative and is not consistent with the significant ASIC and Sedgwick reviews, our knowledge and understanding of the industry, and our own research,” he said.

Helping brokers to leverage the positive trends, a series of marketing materials will be made available on the MFAA website to enable members to share the information with their customers.

There are currently 17,000 brokers in Australia and from 2008 to 2017 the average number of loans originating through the channel reached 500,000 per year. In the last four years, the market share for non-major bank lenders has increased from 21.5% to 28%, driving competition and improving customer choice.

“We believe this data will demonstrate to the broker and the broker’s customers, that the channel is very sound,” Felton added.

 

CBA moves away from conflicted volume-based service model

From MPA.

CBA has announced changes to its volume-based ‘diamond, gold, silver and bronze’ service model for brokers following advice from the Combined Industry Forum and intense questioning at the royal commission.

During the royal commission hearing on 15 March, Daniel Huggins, CBA’s executive general manager home buying, acknowledged that the bank decided to change the volume-based structure after acknowledging that it could create conflicts of interest with diamond brokers being awarded faster turnaround times and better service.

In a note to MPA on Wednesday, Huggins explained that the new two-tiered system is part of the bank’s “ongoing commitment to support and recognise brokers who are consistently delivering good customer outcomes”.

CBA’s previous model had 11 segments with the top being diamond. Those brokers who qualified had to write at least $15m and/or settle at least 75 CBA loans per year and achieve three out of five quality metrics.

Under the new regime, there will only be two categories: essential and elite.

The model moves away from volume-based requirements, as recommended by the Combined Industry Forum. Instead, a broker’s performance will be assessed on five key quality metrics and five complementary metrics. Their performance will be evaluated on a quarterly basis.

This should help even the playing field for regional brokers who generally have smaller average loan sizes and wouldn’t have made the top tier under CBA’s previous structure.

“We are really pleased to announce a simplified tiered service model with a focus on quality that seeks to recognise and reward our accredited brokers who deliver strong customer outcomes,” Huggins said.

CBA and accreditation

CBA also recently announced that instead of de-accrediting brokers who hadn’t written a loan with the major in 12 months, it would just require them to complete an e-learning training module to ensure they are updated on current products and criteria.

The bank said it will no longer require brokers to write a minimum number of loans to retain accreditation.

In the past, brokers who wanted to maintain CBA accreditation had to submit a minimum of four home loan applications and settle at least three every six months, although according to CBA this was not systematically enforced.

The royal commission revealed that in 2017 CBA revoked the accreditation of 710 brokers due to inactivity.

Bluestone moves into near prime space

From MPA.

Non-bank lender, Bluestone Mortgages, has announced its entry into the near prime space.

The move includes rate cuts of up to 2.25 basis points across its entire product suite, at a time when “PAYG and credit impaired customers are affected by the tightening criteria of traditional lenders”.

It comes off the back of extra funding through the acquisition of Cerberus Capital Management.

The Crystal Blue portfolio is being seen as particularly ambitious, comprising of full and alt doc products geared to support established self-employed borrowers and PAYG borrowers with a clear credit history.

Head of sales and marketing at Bluestone Mortgages, Royden D’Vaz, said, “The recent acquisition of the Bluestone’s Asia-Pacific operations by Cerberus Capital Management has enabled a number of immediate opportunities to be realised, most notably the assessment of our full range of products and to ensure they fully address market demands.

“We’re now in an ideal position to aggressively sharpen our rates based on the new line of funding, and pass on the considerable net benefit to brokers and end-users alike.

“The rate reductions have significant strategic implications as it places the company in a position to expand its operations into the near prime space as a natural extension of its specialist lending focus. This comes at an opportune time as a growing volume of self-employed, PAYG and credit impaired customers are affected by the tightening criteria of traditional lenders.

“Unlike big banks, we don’t have credit scorecards, which means we’re able to assess every borrower based on their merits and individual circumstances. We’re not one-size-fits-all by any means, which is increasingly appreciated.”

The move is being actively supported by the extension of the BDM, credit assessor and support teams to enhance access to decision makers to help brokers get more deals done, more often.

Bluestone’s is now focussed on actualising a number of imminent opportunities that address current market demands. The company says the series of rate reductions are the beginning of many initiatives that will enhance or expand the company’s portfolio.

Short-term drop in loan volume as banks tighten lending

From MPA.

The mortgage sector can expect a lower volume of loans in the short-term as banks tighten their lending standards, according to the CEO of an Australian property research firm.

The royal commission has found that the current process for ensuring home loan customers provide accurate information about their incomes, expenses, and debts is flawed, RiskWise Property Research CEO Doron Peleg said in a statement. This includes details gathered by mortgage brokers on the living expenses home loan customers declare in their applications.

Banks have already started to apply greater scrutiny to the living expenses disclosed by their customers. Westpac, for example, informed brokers that they need to require customers to submit more details about their spending when applying for a mortgage. They now need to break their spending down into 13 categories instead of six.

“In the short term at least, this is likely to result in a lower volume of loans, as seen in the UK which had a 9% drop in volume as a result of the 2014 Mortgage Market Review to address lax lending standards,” Peleg said.

Peleg also expects the duration of loan approvals to increase “significantly” and for borrowing capacity to drop. He pointed to figures from global investment bank UBS, which recently forecasted credit availability to drop by 21%-41%.

Peleg added that tighter standards also pose risks to property developers as some areas – especially properties at the top end of the market – are more exposed to price corrections. He said many borrowers need to rely on the current borrowing capacity to purchase these properties. “Significant reduction to the borrowing capacity may have a direct impact on these properties.”

According to the CEO, the demand of buyers on specific properties are based on lending approvals, pre-approvals, and risk assessments by independent research houses such as RiskWise.

“If the major lenders’ ‘black list’ some suburbs / postcodes or if there are multiple media releases from independent research houses that flag a certain area and property types as high-risk, based on their models, this might have a macro-impact on the market,” he added.

FBAA calls for less speculative reporting on broker remuneration

From MPA.

The FBAA has called for “perspective” on broker remuneration amid “unprecedented, unnecessary and crazy” opinions by some ill-informed commentators on the industry.

FBAA executive director Peter White has criticised the number of probes by authorities – including the Productivity Commission, ACCC and Royal Commission – as they `”are falling over each other on their quest for profile.” He also said ASIC itself has only recently conducted a comprehensive review

“I have never seen such craziness around our sector, and this is leading to reactionary comments rather than considered approaches,” he said in a statement.

White pointed out the industry has already been undergoing a process of reform directly with regulators for the past few years to achieve better consumer outcomes.

White believes  “there really is no problem” – It’s just that “these multiple inquiries and statutory bodies have to justify their existence and fat pay packets by kicking someone, and at the moment it’s finance brokers.”

“Let’s keep in mind that consumers are not complaining; we know they are happy with the current system because they are voting with their feet and overwhelmingly choosing brokers,” White added.

White suggests that brokers avoid reacting to quotes coming from bank bosses because their words can easily be edited and used out of context.

He recognizes that banks have raised some eyebrows, but he also points out that their Royal Commission submissions, except for one bank, show support for the existing system. And that doesn’t surprise him because he believes “it’s better for banks, brokers, and borrowers.”

White hopes to hear less speculative reporting, and more rational and informed discussion moving forward.