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In Australia, the big banks have good business. The small, non-major banks are in the shadows of the big banks waiting to catch what is being thrown out by the big banks.
In order to create some sense of balance,
brokers have been urged to help smaller lenders by sending them more business.
Instead of focusing on getting loan clients for the major banks, brokers are
encouraged to diversify, and get familiarized with the loan policies of the
smaller lenders.
David Ure, head of the Heritage Bank’s branch
and third-party channels, is hopeful and would like to see more brokers
approaching non-major banks about their loan facilities and other financial
products.
While brokers seem to be responsive to the call,
not many have really supported the call with concrete actions. For some
brokers, they see the benefits of being able to offer another option to their
clients outside of the big four banks. But other brokers may have been hesitant
to learn new things – the policies, products and services offered by the
non-major banks.
According to Mr. Ure, if you check the number of
loans that have been facilitated in a given month through non-major banks, the
resulting percentage is almost always low.
On the part of the brokers, they argue that they
are able to best serve their customers if they have that comfort and confidence
level discussing a particular bank’s credit policy, perks and benefits. They
should know these details by heart and should be able to discuss confidently
with both eyes closed to be able to deliver the highest level of service to
their clients or customers.
Brokers have invested time in learning these
details from the major banks. To be able to sell the products of the non-major
banks, brokers have to go through the learning process again. It takes time to
get to the level of understanding they now have with major banks.
So if they are approached by customers, they are
in a better position offering the products of the big banks – which they know
by heart, than offering the products of the small lenders, which they are still
in the process of understanding and learning.
As it is important for customers to be able to
have all their queries answered accurately and correctly, brokers would be more
confident discussing the products of the major banks.
But while this is true, brokers should not forget
that it is also their role to educate their clients about alternative lending
options. If your client asks you for another option, you wouldn’t be referring
a product from another big bank, would you? They may not differ that much from
each other.
What you can offer as another option that is a
product from the non-major banks. This way, they are able to give their clients
the freedom to choose a product which they deem would be more applicable and
suitable to their circumstances rather than giving them no other option at all.
Brokers should realize that by having a wider range of lending options, they have more opportunities. Borrowers who may
potentially be turned down by the big banks can still approach you if they know
you can facilitate their needs with the smaller banks.
Or if you were approached by a client who you
know has less approval chances with the major banks, you don’t miss out on the
business opportunity because you can divert the client to the smaller banks’
financial products and facilities. The client ends up with a loan; the smaller
banks got their small share of business, and you get compensated for the deal
closed. Everybody wins!
Over a hundred of Australia’s non-major banks or
smaller lenders are represented by the Customer Owned Banking Association
(COBA). Heritage Bank and Teachers Mutual are two of them.
Mark Degotardi, acting Chief Executive of COBA
said that customer-owned banks offer quality and trusted alternative to the four
major banks. Brokers are offered some diversity and competitive pricing for
their customers. Overall, customer-owned banking institutions offer rates that
are 0.50% lower than the major banks on published standard variable rates.
If the major banks push through with their plan
to increase mortgage rates, consumers are likely to look for a better
alternative and eventually switch to a customer-owned banking institution.
For the first time, a unique report on the
Australian mortgage market has been published by the Reserve Bank of Australia
which reveals disturbing details on intrinsic market risks. An estimated 72,000
home loans between 2009 and early 2014 have been analyzed and the report
findings showed that borrowers with a higher LVR (loan to valuation ratio) loan
were more than three times to fall behind in their repayments.
An estimated 1,300 of the 72,000 home loan samples
analyzed were found to be in arrears by more than 90 days at some point of the
loan term. But loans with LVR between 90% and 100% are estimated to be 3.5
times more likely to enter into arrears compared to loans with LVR of less than
60%.
The report findings indicate only a non-linear
increase of the risk of entering arrears. And the subhazard or risk is
specifically high for loans with LVR between 90% and 100%. Loans with LVR
between 80% and 90% are found to have a subhazard of entering arrears by 1.1
times more than loans with LVR between 60% and 80%. In other words, loans with
higher LVR tend to enter into arrears more than loans with lower LVR, according
to Matthew Read, Cianni La Cava, and Chris Stewart, officials of the Reserve
Bank of Australia.
The RBA report, Mortgage-related Financial Difficulties:
Evidence from Australian Micro-level Data which was released on November 26th is
the first-of-its-kind paper to use micro-level data to quantitatively analyze
financial difficulties in Australia that are mortgage-related.
The distinctive report found evidence that suggests
significant correlations between ability-to-pay and equity factors, and the
incidence of mortgage stress.
Additionally, it established that slower repayments
indicate that an increase in interest-only loans means an equivalent increase
in risk even if interest-only loans are not as likely to enter into arrears.
What had been found to more likely enter arrears are low-doc loans compared to
other types of loans even if strict screening on the borrower’s employment
status was made.
Such clearly suggests that sound income
documentation and verification policies should be maintained by lenders and
with the supervisors continuing to monitor developments in order to ensure
timely payment of loans.
With the report’s findings, the Reserve Bank of
Australia could use the data as an input that would help Australian banks and
mortgage lenders to determine and test the risk level of their home loan
exposures. Australia’s central bank also believes the report findings and
information would be helpful in framing the design of the prudential policy
structure. In essence, RBA can use the information to help make informed
decisions about the risk level lenders, investors and regulators are willing to
accept.
A new research by IBISWorld released on 24th November reports that a record 30 billion Australian dollars or the equivalent 26 billion US dollars will be spent by Australians this coming Christmas season.
Said report predicted an increase in overall retail
sales by 35% in December, which is a 5.5% increase from last year’s record.
Sales in department stores are to lead and forecasted to skyrocket to 94%.
Apple products which include iPhones and iPads may be
the frontrunner, according to the report, being the most popular and
sought-after products this time of year. Electronic retailers are expecting a
56% boost in trading activities.
The strong seasonal demand and projected sales
increase will likely subsidize weaker trading periods throughout the year, as
the Christmas season presents both challenges and opportunities for many
businesses in Australia, explained senior analyst of IBISWorld, Stephen
Gargano.
Particularly at this time of year, department stores
are typically a one-stop-shop where they try to have a range of consumer goods
which the buying public may want or be looking for during this season. And
having almost everything shoppers would want for Christmas becomes their edge
as consumers who don’t have the luxury of time to go hopping from one store to
the other in search of the items they need, would opt to shop in just one store
which they know most likely has everything. These are the consumers that would
be shopping for Christmas gifts and holiday needs.
Retailers can also take advantage of the high demand
and high volume of shoppers during the Christmas sales period to clear their
inventory especially in their clothing, footwear and personal accessories by
offering special promotional discounts. This strategy would expectedly result
in a 66.2% increase in revenues from clothing retailing in December as shoppers
take advantage of discounted prices to update their own personal clothing
requirements.
More pronounced will be the increase in revenue from
footwear sales and accessory retailing sections, with an expected increase by
76.7% which is attributed to higher spending of consumers on popular gift ideas
such as watches, and jewelries.
Gargano also noted that December spending in liquor
retailing and restaurants are also expected to increase during this Christmas
shopping period. Spending on liquor is expected to rise by 59.4% and this would
be driven by demands from various Christmas parties occurring in many different
places in the country. Alcohol consumption is always expected to increase
throughout the holiday period. Restaurants on the other hand get busy with
bookings for Christmas functions by corporations and families, where revenues
are expected to grow by 24.9% only for this holiday season.
