Australia’s challenger banks see the mortgage broking industry as a significant opportunity for growth as funding and regulatory costs begin to take their toll.
As part of its Australian Mortgage Report 2018, professional services giant Deloitte asked a group of mortgage industry leaders where the opportunities will be for regional lenders to participate more effectively in 2018.
While the largest response was levelling the capital discrepancy between standardised and advanced banks, 25 per cent agreed that a continued focus on brokers as a distribution channel was critical.
“If you’re a regional lender, you may have a strong brand presence with customers in your geographic area, but brokers do allow you to reach a broader cross section of society and a broader geographic spread of consumers to come into your portfolio, which helps from a risk diversification perspective,” Deloitte financial services partner James Hickey said.
“Certainly, in the absence of being able to invest themselves in a brick-and-mortar channel, the brokers will give them access to customers they wouldn’t ordinarily be able to reach.”
However, HSBC and Smartline agreed that challenger banks need to have a niche if they are to gain traction through the third-party channel.
“From a broker’s perspective, a number of our panel lenders are non-bank lenders. And unless they have a niche, they just get absorbed as the majors have got it pretty down pat. After all, a home loan is a home loan is a home loan,” Smartline’s Joe Sirianni said.
“For instance, a number of franchisees contacted me and asked for HSBC on their panel because they have a niche product.”
HSBC’s Alice Del Vecchio noted that non-majors have been “forced into an environment: where they have to become more like the majors.
“If you don’t have a niche, you just get buried.”
Funding and regulatory costs on the rise
While broker distribution provides an opportunity for challenger banks going forward, they are being challenged by rising funding costs and the burden of ongoing regulation and inquiry.
The Deloitte report, which was released last week, found that the biggest challenge for non-majors is access to funding relative to the big four.
“We have seen that in the most recent fortnight, some of the non-majors have had to move their standard variable rate in response to movements in the underlying BBSW spread over cash,” Mr Hickey said.
“The majors have so far been able to absorb that and not pass on that movement. They may well move on it soon, but it just goes to show the heightened level of sensitivity the regional lenders have to wholesale funding markets.”
Another significant challenge for the regional lenders is the cost they are incurring to keep up with regulation and ongoing investigations.
“It’s not just the financial cost of having to update systems or people, it is also the management focus — that’s an opportunity cost,” Mr Hickey said. “That disproportionate burden upon regional lenders is something that they have all noted.”
What do you think of the non-major banks?
The Adviser’s annual Third-Party Lending Report – Non-Major Banks survey 2018 has now opened, looking specifically at product offering, technology, broker support and commission.
This is your chance to tell us what the non-major banks are doing well and where they should improve their broker proposition, if they are to win more of your business.
The survey will only take around 10–15 minutes to complete.
Have your say now by completing the Third-Party Lending Report – Non-Major Banks survey online.
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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