Brokers are part of both the cause for and the solution to regional lenders’ struggle with the Australian Prudential Regulation Authority’s crackdown on investor loans.
That’s according to Wayne Byres, chairman of APRA, who in a parliamentary hearing yesterday (13 September) responded to fears that regional lenders are struggling to compete with larger banks due to regulatory caps on investor lending growth by pointing to the role brokers play.
Mr Byres said that APRA has “concern… around the way the mortgage broking industry allows lending to occur”.
Nationals MP Kevin Hogan had asked Mr Byres whether APRA has flexibility around the enforcement of its 10 per cent cap on investor lending growth, especially as it pertains to regional lenders.
He gave the example of a smaller regional lender attempting to compete with a major bank to finance investor loans. Mr Hogan argued that competition was inhibited by smaller lenders’ correspondingly smaller investor lending leeway.
Reflecting on the comments, Mr Byres said: “For a large number of institutions that make use of brokers, you don't have to be physically located in a particular area to make loans in a particular area.
“If you allow organisations to have much higher constraints or no constraints, then they don't necessarily need to constrain their lending to their local community.”
He continued: “There are plenty of opportunities for all sorts of institutions who like to diversify their business to lend through loans sourced through brokers from other areas of the country.”
Mr Byres also noted that 10 per cent is “still a rapid rate of growth in the current environment” and that there are “some smaller institutions that are growing faster than 10 per cent”.
Further, he asserted that APRA has flexibility “primarily with timing”, but he added that APRA did not want to “develop a concentration of poorer-quality lending in smaller institutions” courtesy of unnecessary flexibility.
The Nationals senator, however, rejected Mr Byres’ argument, concluding his questioning with: “I think that is inhibiting competition against the four majors in regional areas.”
Speaking with The Adviser last month, Queensland state director of Loan Market Peter Camphin said that regional brokers can help clients shop around.
Mr Camphin said that rural borrowers often have relationships with major banks that can be four generations strong; however, brokers can help challenge customers’ “blind loyalty”.
“The loyalty that rural people have for their banks is really very strong. Most of them don't realise that they're maybe not being as well looked after as they may have anticipated they should be or what they think they are.”
He added that the injection of brokers into rural regions can help “keep the banks honest”.
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