THIRD PARTY BANKING REPORT - MAJOR LENDERS, 20111264 people have read this article
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| Wednesday, 11 May 2011 |
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In this year’s Third Party Banking Report – Major Lenders, The Adviser identifies which of the big five have stepped up their game and made significant improvements to their overall broker proposition
MAJORS ADVANCE By Alex Whitlock Group Publisher, The Adviser WHAT A difference a year makes. The brakes are off mortgage lending and competition is heating up – and nowhere is the market share battle fiercer than amongst the majors. The past 12 months have seen exit fees axed, policies tweaked, maximum LVRs boosted and prices sharpened as the banks vie to out-bid each other to win dwindling volumes. But while there is fresh impetus in product innovation from the lenders, how has this impacted broker opinion? The second annual Third Party Banking Report – Major Lenders has revealed some interesting trends in broker attitudes. There have been changes in the rankings compared with the previous year, clearly highlighting that no lenders can rest on their laurels when it comes to the influential third party distribution channel. The more than 470 brokers who completed the survey say it is clear the majors have improved on last year’s performance. In many ways this is not surprising. While the major lenders are a big target, often raising the ire of the broking industry, time has shown that they have backed brokers in their darkest hour. Brokers found out who their friends were during the GFC and it quickly became clear in many overseas markets that many banks were little more than fair weather friends. Market conditions have steadily improved over the past 12 months and the majors have responded by improving their offering where possible. But while there have been improvements across the board, not every lender has gained ground on the previous year. St George has seen its standing tumble from 3rd to 5th place and there is clearly ground for the bank to make up looking forward. There have been some significant changes already at St George but it will take time for the effects to become apparent. Conversely, NAB has seen a big swing in broker opinion as the bank stormed up the rankings this year. As you’ll see from the full report there is still plenty of room for improvement from the bank, but should broker concerns be addressed effectively, CBA and ANZ will soon be looking nervously over their shoulders. But what is perhaps more impressive than NAB’s charge up the rankings is CBA’s staunch resolution to remain the leader in the field. In what was a close run affair last year, with just 0.2 points separating CBA and ANZ, a major gap has now opened up between the top two banks. In many ways CBA remains something of an enigma. The industry’s biggest lender clearly can’t please all the brokers all the time and this is reflected in the strong likes and dislike for the bank in what is a polarised industry. CBA, however, has clearly built on its leading position over the past 12 months. The challenge for the bank over the coming year will be to sustain its lead, with some stiff competition likely for next year’s top spot. STEPPING UP TO THE PLATE AUSTRALIA’S FIVE major banks have long dominated the mortgage lending market in Australia. According to data from the Australian Prudential Regulation Authority (APRA), the majors accounted for more than 70 per cent of all new home loans written in the year leading up to the 2007 global financial crisis. Since that time, however, Australia’s big five have grown their market share significantly. The global financial crisis cemented the dominance of the big five, as borrowers flocked to the perceived safety of a ‘major’ lender. As of March 2011, the five major banks accounted for over 83 per cent of all ADI housing investment and owner occupied home loans in Australia. This figure was broken down into the following loans on Australian books:
*As of January 2011, APRA started combining Westpac’s and St George’s home loan book into the one figure. In terms of market share, the following details the banks’ share of all mortgages:
Total: 83.12% While these figures are collective across all distribution channels (retail and third party) and do not take into account the market share of Australia’s non-bank lenders, the fact remains that the majors dominate mortgage lending in Australia, and are therefore key providers to the broker channel. But while Australia’s third party distribution channel relies on the majors for products, the big five do not ‘wear the pants’ in the broker/bank relationship. Far from. According to the latest Fujitsu/JP Morgan Mortgage Industry Report (Volume 11), brokers write more than 40 per cent of all new home loans. This figure has grown substantially over the past 10 years and there are indications to suggest broker market share will grow further still in the future. The challenge – and indeed the opportunity – for the majors over the period ahead will be to understand the drivers of Australia’s third party channel and direct resources to meet the needs of brokers. St George has already announced its bullish plans to increase the number of mortgages written through the third party distribution channel. Speaking to The Adviser, St George chief executive Rob Chapman said the lender would look to increase the business it writes through the broker channel by 10 per cent in as little as 12 months. “The third party distribution channel is really important to us. The broker channel accounts for just under 40 per cent of our business to date, and we want to grow that by another 10 per cent,” Mr Chapman said. “To do this, we know we need to have a valuable proposition that both brokers and consumers want. As such, there will be some product development for the broker channel – and there is the prospect of a new product that we’re looking to bring to market.” The bank also plans to streamline back office processes through sharing resources with parent group Westpac. “There is no point just focusing on price or policy. We know to be competitive we have to have a competitive suite of products, fast turnaround times and excellent broker support,” Mr Chapman said. And St George isn’t alone. Both Westpac and NAB have indicated they too will look to grow the level of business they write through the broker channel over the coming few years. This dedication and commitment to the broker channel was reflected in the 2011 Third Party Banking Report. According to brokers, NAB/Homeside has made significant improvements to its broker proposition over the past 12 months. The lender managed to improve in almost every single broker rated category, helping it to surge up the ranking from fifth last year to third in 2011. This year’s report also highlighted how different attributes of a bank’s offering can influence brokers’ willingness to write their products. These findings are important for Australia’s major lenders as they highlight where those lenders perform well and where improvements can be made to their various broker propositions. What is clear from this year’s report is the role that broker support plays in determining where the third party channel puts their business. Quality BDMs, credit staff and administrative teams have a far bigger impact on brokers than commissions or technology, as long as all the other aspects of a bank’s product and service offering are in the ball park. FINAL RATINGS AND METHODOLOGY More than 470 brokers participated in the Third Party Banking Report – Major Lenders. Each respondent was asked to rate the five banks on a scale of 1 to 5 (1: very poor; 2: poor; 3: average; 4: good; and 5: very good) on a total of 17 metrics covering product, support, technology and commissions. For example, a rating on a metric of 3.5 would indicate that the bank was between average to good in terms of broker attitude. Out of a maximum 85 points available, the final ratings were as follows:
Overall, in achieving the highest ranking, CBA is The Adviser’s Major Lender of the Year. The Adviser applied the following process in undertaking this year’s Third Party Banking Report – Major Lenders: Brokers who subscribe to The Adviser BULLETIN, the daily email from www.theadviser.com.au, were invited to participate in the survey in April 2011 All five major lenders were also given the opportunity to offer brokers that write their product the opportunity to participate in the survey The survey was promoted once, though remained open for two weeks Survey data was then assessed and analysed by research house Retail Finance Intelligence, which provided the final findings. PRODUCT All of Australia’s lenders have enhanced their product offering, with NAB/Homeside, CBA and ANZ emerging the clear winners LENDER PRODUCT and policy structure can significantly influence which lender brokers recommend to their clients. Aggressive pricing is almost certain to drive business in a lending market in which there is generally little to choose between the majors’ variable rates. For a larger part of 2010, 27 basis points separated the majors’ standard variable rates. However, following the Reserve Bank’s November rate hike, that gap decreased significantly. Today, a 19 basis point spread exists between the big five. Westpac has the highest rate, at 7.86 per cent, whereas NAB still has the cheapest home loan, with a standard variable rate of 7.67 per cent. PRODUCT RANGE When considering the quality and comprehensiveness of residential mortgage products, brokers said ANZ, for the second year running, had the best product range overall, with a score of 4. CBA was hot on ANZ’s heels, recording an average score of 3.96 – just 0.04 points behind ANZ. There was a significant gap between the remaining three lenders, however, with St George registering the lowest score of 3.48. PRICING The Third Party Banking Report’s product, policy and pricing sections have been restructured since last year’s report, in which the two were combined. On the recommendation of the lenders involved in the 2010 ranking, and following work undertaken to improve these components of their products, The Adviser has separated the categories. In the area of pricing, NAB/Homeside performed strongly, recording an average score of 4.24 out of 5. The major’s strength in this category comes as no surprise given that NAB/Homeside has boasted the lowest standard variable rate of all the majors for the past 17 months. There was gap of 0.52 between NAB/Homeside and its nearest competitor, ANZ, highlighting how influential the major’s price advantage is. POLICY When measuring the competitiveness of major lenders’ products across key market segments, brokers said CBA had the best suite of products in terms of policy, recording an average score of 4.15 out of 5. ANZ placed second – significantly behind CBA – with an average score of 3.45. CROSS SELL Lenders have been quick to recognise the added distribution capability available via the third party industry and they now support brokers with insurance, transactional accounts, credit cards and a raft of other products. For the second year in a row, CBA significantly outperformed its peers in the availability, support and provision of non-mortgage products, with an average rating of 4 – up from 3.82 recorded at this time last year. ANZ was CBA’s nearest competitor, with an average rating of 3.34. Interestingly, every lender bar St George managed to improve its broker rating over the last 12 months in this category. SUPPORT The level of support a lender provides can have a significant impact on where brokers place their business. CBA was again the standout performer this year across this segment, topping the majors in eight of the nine categories POLICY, PRICE and suitability aside, a lender’s BDM team, level of broker communication and turnaround times will influence where a broker places their customers’ business. This is the reality of third party distribution. This year’s ranking has revealed that all of Australia’s major lenders have made a concerted effort to improve the level of support they provide to brokers. CBA was, once again, the standout performer. Despite a stellar performance last year, the lender managed to improve how it was perceived by brokers in almost every single category, including BDMs, ease of dealing with credit assessment staff, servicing post-settlement, training and education as well as turnaround times. Broker interaction was the only area in which the lender dropped, with its average broker rating falling from 3.33 in 2010 to 2.87 in 2011. While CBA impressed brokers overall in almost every support category, St George’s level of support failed to strike a chord with the third party distribution channel. St George performed poorly in the areas of education and training, business support, turnaround times and broker interaction. The bank finished either fourth or fifth in every single support category – excluding channel conflict, where the lender finished third. BDMs AND CREDIT ASSESSMENT STAFF Access to BDMs is a clear differentiator when it comes to brokers’ attitudes towards the majors’ overall third party service offering. For most brokers, the only face-to-face relationship they have with their lender is through their BDM so, understandably, the relationship is crucial to brokers and is a major determinant of where they place their business. CBA performed comparatively well in this category, recording an average broker rating of 3.87 – beating convincingly last year’s winner, ANZ, which achieved a rating of 3.42. Third, fourth and fifth places went to NAB/Homeside, Westpac and St George respectively. St George fell a long way behind the bank’s fellow majors, achieving an average broker ranking of just 2.60. Credit assessment staff are also a key touch point for brokers and their effectiveness can have a major impact on the broker’s experience dealing with the customer. Ultimately, a lender’s credit assessment staff have the final say when it comes to determining whether or not they will extend finance to a borrower. Brokers will accordingly be more inclined to use those lenders that have a capable credit assessment team. CBA has long had a reputation within the broker channel for being willing to ‘do a deal’ and this did not go unnoticed considering the findings of the ranking. The lender convincingly beat the competition in this category, scoring an average broker rating of 3.99. CBA’s nearest competitor, ANZ, scored just 3.02, lending further weight to CBA’s reputation in this sector with the third party distribution channel. CLIENT SUPPORT Broker segmentation has long been a key focus for lenders. Four of the big five have segmented their broker base in a bid to provide more support to the brokers who provide them with greater volumes and higher quality applications. The Adviser can identify that CBA provides the best client support of all the majors, beating its competitors convincingly. Westpac managed to climb up the ranking to place second overall, followed closely by ANZ, St George and finally NAB/Homeside. BROKER COMMUNICATION AND INTERACTION Broker communication via newsletters, updates and other channels is key to keeping brokers abreast of changes to bank policy and product, particularly at the moment. Australia’s majors have been constantly reviewing, tweaking and restructuring their policy and product suites in a bid to stay one step ahead of their competitors in the current ‘price war’. Constant and relevant broker communication has become more important than ever. CBA and ANZ, for the second consecutive year, were the clear leaders in the field of broker communications – both for day-to-day matters and when dealing with specific issues. CBA scored a very respectable 3.89 out of 5, while ANZ recorded an average rating of 3.64. Westpac was third, followed closely by NAB/Homeside and finally St George. Despite its fourth position, NAB/Homeside made the biggest improvement of all the majors in terms of its broker rating for this area, climbing from an average rating of 3.07 last year to 3.43 this year. NAB/Homeside also made some dramatic improvements in its level of broker interaction, climbing up the rankings this year to third from fifth. Last year, NAB/Homeside’s level of broker interaction was considered to be “poor”, with the lender receiving an average broker score of 2.33. This year, the lender registered an average broker rating of 3.15. While NAB/Homeside managed to step up its game in terms of broker interaction, CBA and St George failed to impress, with both lenders’ overall broker ranking slipping from last year. TRAINING & EDUCATION AND BUSINESS SUPPORT In terms of their overall commitment to helping brokers build their businesses (eg through business development days or sales and marketing support), four of the big five managed to improve the way they are perceived by the third party distribution channel. Last year, very few brokers described any of the major lenders’ commitment as “very good”. This year, the story was a little different. Over the past 12 months, CBA, NAB/Homeside, Westpac and ANZ have all managed to improve the quality plus the amount of training and education they provide to brokers. St George slipped backwards, but this result is not surprising given that the lender pulled right back from the market approximately 12 months ago to evaluate its position in the industry. Just like the 2010 ranking, CBA was the standout leader in this sector, with more than 50 per cent of brokers describing its provision of training as good or very good. NAB/Homeside made arguably the greatest improvements over the past 12 months, with the lender climbing to second place both in training and education and in business support. TURNAROUND TIMES How quickly an application is approved will influence where a broker puts their business. When the federal government launched its boosted first home owners’ grant in 2009 all of the majors experienced a significant upswing in business, which caused turnaround times to blow out. NAB/Homeside, with the lowest variable rate of all the majors, experienced the greatest upswing and this greatly affected the bank’s position in The Adviser’s major banks’ ranking last year. Nearly half of all brokers said the lender’s servicing times were very poor in 2010. However, NAB/Homeside’s back-end issues now seem to be largely under control, helping the lender to improve its overall average broker rating. This year, NAB/Homeside achieved an overall broker rating of 2.70 – significantly higher than the 1.91 achieved last year. But this marked improvement still failed to meet the standards set by Australia’s other majors. CBA led the field on this metric for the second consecutive year, convincingly beating the other majors. Westpac and ANZ battled it out for second place, with Westpac pipping the other lenders at the post. CHANNEL CONFLICT Since all lenders originate business via retail and third party channels, brokers are sometimes understandably concerned that preferential treatment will be given to the lenders’ bank branches. Last year, brokers viewed ANZ as the major lender with the best approach overall to the third party channel compared with its branch network. This year, ANZ managed to improve its average broker rating but failed to retain first place. Instead, CBA powered ahead of ANZ to take a commanding lead in this area. Third position was hotly contested by the remaining lenders, with St George eventually securing the place. NAB/Homeside has made some dramatic improvements to its third party offering in the past 12 months and this was well reflected in this year’s survey. Brokers seem happier to deal with the bank, despite the fact that its turnaround times remain the least impressive of the majors. TECHNOLOGY Technology has come a long way since the broker’s entry onto the lending stage. Today, a lender’s web presence and online lodgement system can mean the difference between passing a loan today or next week – which obviously has a significant impact on a broker’s business decisions TO GROW market share, Australia’s majors understand they need to be competitive on the technology front. Offering software solutions that can help improve broker efficiency – not only to secure greater business from brokers but to ensure the business written is processed without delay – is essential. In what is a remarkably tech-savvy industry, brokers have adapted well to the new requirements, with almost all business now submitted online. It is therefore critical that lenders’ systems are up to scratch. ONLINE LODGEMENTS Many of the majors now reward or penalise brokers based on the quality of their online applications. CBA was the clear leader in terms of usability, but it was clear from the results that brokers believe all lenders offer a fairly robust, transparent and easy to use online lodgement system. Australia’s majors all received a broker rating between 3 and 4, suggesting brokers believe their systems are competent and efficient. That said, lenders continue to invest in developing online systems and this will remain an important focus as they seek to give brokers the tools to lodge quality applications online. WEB PRESENCE Much of the battle for market share is being fought online, therefore it is crucial that a lender have an effective web presence. With product and policy constantly changing, it is essential that lenders keep their site up-to-date, with information easy to access and interpret, to help brokers lodge quality applications. CBA was seen as the overall leader in this field, with Westpac following hot on the bank’s heels. Results were in line with last year’s, except for NAB/Homeside which has made significant improvements to its web presence, according to brokers. The major recorded an average broker rating of 3.21 – up from 2.99 achieved in last year’s ranking. COMMISSIONS Commission cuts remain a bone of contention for brokers, and none of the majors performed very well in this section of the rankings LENDER COMMISSIONS have long been a matter for debate, argument, concern – and could even be characterised as a sore point. Before the global financial crisis, lender commissions varied little from major to major. Since then, however, the majors have sought to restructure or tweak their commissions (both upfront and trail) to differentiate themselves from the competition. Today, lenders not only offer different amounts, but different commission structures as well. Some, like NAB/Homeside for example, reward broker and customer loyalty, while other lenders are starting to reward quality. St George recently tweaked its commission structure to reward brokers with higher conversion ratios. STRUCTURE The days of the simple upfront and trail commission structure appear to be long gone. NAB/Homeside’s desire to reward broker loyalty sat well with the third party distribution channel and the lender was ranked equal first with ANZ. But while the lenders’ respective commission structures were good enough to help them secure equal first in this report category, the banks’ structure overall did not strike a favourable chord with brokers. None of the majors managed to achieve an average broker rating above 3.08. REMUNERATION A sense of broker dissatisfaction also carried over to the remuneration structure, with brokers reliant on commission as their key source of income. NAB/Homeside was deemed to provide the best remuneration of all the majors, suggesting brokers appreciate being rewarded for their loyalty in the form of increased trail. ANZ came a very close second, with a rating of 2.97, which may explain why it was also regarded as having the best structure. Westpac’s remuneration placed it last overall, indicating brokers have long memories and can accurately remember which major cut commissions first back in 2009. Overall, broker rating was not strong in the area of commissions. However, this result does not come as a shock considering brokers have been arguing for two years that commissions are too low and cannot help a business to remain profitable in the new era of licensing and regulation.
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