2011: What a year. The non-bank landscape changed forever with the entry of the NCCP on 1 January and the exit of deferred establishment fees on 30 June.
Local and global factors also shook the sector; the industry experienced everything from natural disasters, a depressed property market, the two-speed economy and global financial turmoil, just to name a few.
So what does the future hold for the non-bank players that survived?
Housing prices: While we may be a wide, brown land, Australia has centralised capital cities and our non-mining revenue generators are based in CBDs and city-fringe locations. This is a positive for our housing market as it creates scarcity: You can only realistically live so far from CBDs and this market insulates our market from the freefalling value scenario of our western counterparts.
Employment: Despite some rumblings within manufacturing and retail, unemployment rates hover around the low five’s meaning those who want a job, still have a job.
Legislation: The hard yards of implementing NCCP compliance, obtaining the necessary licences and product changes associated with the removal of exit fees have been run. Non-bank lenders have secured our ACLs, surmounted the interminable paperwork and come to terms with ASIC’s compliance requirements.
Interest rates: The cost of borrowing would appear to be trending downwards in the short-to-medium term.
Buyer reluctance: Australians may have reached their peak appetite for debt. According to RateCity’s Damian Smith (The Adviser, 24/10/2011), in 2011 we have experienced the slowest growth in home loan borrowing since 2005.
Finite fiscal resources: In 2008 in response to the GFC the Australian Government spent its way clear of trouble. If another similar event unfolds in 2012, our ability to pass through unscathed may not be as strong.
International economic woes: Who really knows where the Eurozone issues are heading?
The job of the lender is to lend. Obviously. There are two strategies available:
1 – Compete on services and price.
2 – Look for niches that banks are unwilling or unable to service, or are not servicing properly. Find innovative ways of creating a competitive advantage through developing niches.
The crystal ball
With a short-to-medium downturn in lending volumes likely and the ever-increasing dominance of the banks, expect non-bank lenders to innovate through increasing specialisation in 2012. Margins will be increasingly important as a trade-off for volume, and BDMs will be knocking at your door to promote niche products.
Australia has a strong non-bank sector, the fallout from GFC Mark 1 has been and gone, and providing the Europe debt crisis leaves us unscathed, the industry is poised to thrive in 2012 and beyond. Either way, let’s enjoy the ride!
Michael Watson is Operations and Marketing Manger, MKM Capital
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