A non-major bank has implied that it does not expect to be heavily impacted by Commissioner Hayne’s recommendations pertaining to mortgage brokers.
Following Bendigo and Adelaide Bank Limited’s half-yearly results for H1 FY19, a spokesperson from the non-major bank said that if Commissioner Kenneth Hayne’s recommendations pertaining to the mortgage broking industry be implemented by the government, such as the abolition of trailing commission, it expects its business to continue growing through other segments of its third-party channel.
“Given that, as per the size of portfolios on that chart, if there is a weakening of mortgage broker volumes as a result of the royal commission recommendations, we believe that our mortgage manager and white label partners would continue the upside in volumes that we have seen in recent times to offset any reduction in broker,” the spokesperson told The Adviser.
Bendigo and Adelaide Bank also doesn’t expect there to be any material change in its expenses “that is outside [business as usual]” should the royal commission’s recommendations be enforced, with the spokesperson explaining that the bank has been “resourcing up to support current and expected growth in mortgage manager and white label channels”.
“As it’s a marginal cost business, any increase in referral fees or other remuneration would be as a result of additional flows,” the spokesperson added.
In its financial results presentation for the first half of the 2019 financial year delivered on Monday (11 February), Bendigo and Adelaide Bank reported that of the $15.9 billion in total mortgages generated through the third-party channel (as at 31 December 2018), mortgage managers accounted for $12.3 billion, while mortgage brokers accounted for $3.6 billion.
When asked whether the bank is in support of banning trail commissions for mortgage brokers, following media reports claiming that it is in favour, the spokesperson said the bank views Commissioner Hayne’s recommendations as “considered and well measured” and will “undoubtedly lead to legislative change”.
“As we have said all along, we welcome recommendations that put customers’ interests first, raise professional standards in the industry, enable competition and deliver better outcomes for everyone,” the spokesperson continued.
“There is still a lot of detail to work through to understand how each of the recommendations would be implemented, but any recommendation needs to strongly consider the best interests of customers.”
Noting that the royal commission’s proposals have “shaken many” in the bank’s network, Bendigo and Adelaide Bank reportedly intends to work with any industry or government working groups that could be established to ensure the implementation of any changes to the mortgage broking industry are carried out in a “methodical and well thought-out manner”.
“We will also work quickly and seek industry input where required to ensure we identify any unintended consequences,” the bank’s spokesperson said.
“We would not like to see any changes that would be detrimental to customers or competition.”
The spokesperson added that Bendigo and Adelaide Bank has a “long history of supporting brokers through both good and testing times”, adding that the broker channel will “continue to remain an important and integral component of [its] business strategy”.
“We see no immediate change required to our strategy, but this thinking will of course evolve over time as we work through the election environment and gain a better understanding of final and actual changes to the Industry,” the spokesperson said.
“We are confident that we’ll continue to work effectively through the current business environment in consultation with our partners and stakeholders as the industry evolves.”
While the bank indicated its support for Commissioner Hayne’s recommendations, managing director Marnie Baker said earlier this week that the final report does “little” to address issues of competition, which she noted as being “essential to better customer outcomes”.
“There is considerable scope for government to supplement the recommendations with pro-competition initiatives, including addressing the ‘too big to fail’ funding cost advantage accessed by the major banks, enhanced risk-weight settings that would result in fairer capital outcomes across all banks and the disproportionate cost of regulation on smaller participants,” Ms Baker said.
“A less competitive environment means poorer customer outcomes.”
Ms Baker insisted that the bank will be less affected by the recommendations than its lending rivals.
“The royal commission final report, whilst extensive and far-reaching, will have less of an impact on our business than many others in the industry given our business model and alignment to customer and community expectations,” she said.
“Any changes at this stage to our business appear to be procedural and policy-related rather than structural.”
Bendigo and Adelaide Bank reported a $200 million half-on-half increase (or 0.95 of a percentage point) in its residential mortgage lending portfolio in H1 FY19, taking the size of its loan book to $21.3 billion as of the end of December 2018.
This was attributed largely to growth across its third-party channel – particularly through the bank’s mortgage manager partners – which is expected to continue.
The bank also reported an 18 per cent year-on-year rise in new customers acquired in the December 2018 quarter, following the launch of Up and home loan pre-qualifications during the quarter, while customer departures remained flat. The monthly rate of net customer growth in the 2018 calendar year was 57 per cent.
The growth continued in January, with the number of new customers rising by 52 per cent compared to the same period last year, according to Ms Baker, while customers leaving the bank fell by 2 per cent in the same month.