The major bank’s CEO has said that he can’t see the rise in broker market share slowing down “anytime soon”, as the portion of the bank’s broker-originated loans increases to 57 per cent.
ANZ has released its financial results for the first half of the 2019 financial year (1H19), reporting that the share of its mortgage flows originated through the broker channel increased to 57 per cent, making up 42 per cent of the bank’s overall portfolio as at 31 March 2019.
Speaking to analysts and investors following the release of ANZ results, CEO Shayne Elliott said that he expects the rise in broker market share to continue.
“There is clearly a structural change happening in the marketplace,” he said.
“More and more Australians are choosing to use the broker channel. They see value in terms of ease but also in terms of price transparency.
“I can’t see that slowing anytime soon.”
Mr Elliott noted that borrowers would continue to drive broker growth, despite uncertainty over the future of the broking industry amid proposed changes to the remuneration model.
“Obviously, there are still some questions being asked around the right remuneration model, and that might have an impact,” he continued.
“Putting that aside, I think that trend will continue, and there are many markets around the world that have much higher penetration of brokers.
“Interestingly, we’ve seen the same trend – although much lower numbers – happening in New Zealand as well.”
The chief executive stressed, however, that ANZ had not deliberately sought to increase its exposure to the broker channel but has instead responded to borrower demand.
“We don’t target [broker growth], it’s something I wish was zero because I’d prefer that everybody got into their car and went to an ANZ branch, went in and got a loan,” Mr Elliott told The Adviser.
“But that’s not realistic. We’re responding to customer preference, not driving it. Customers are voting with their feet.”
When asked how ANZ was preparing for any potential disruption to the broking industry, Mr Elliott said: “We’ve got three major channels for home loan origination at the moment. We’ve got branch, broker, and we’ve got something that none of the other lenders have, which is our mobile lenders.
“[Mobile lenders make up] about 15 or 16 per cent of our home loans, which get written through that channel.
“If the broker channel became, for whatever reason, uneconomic or more difficult, we’ve still got these other two channels that we’d invest more heavily in – we’d make decisions at that time.”
He added: “I believe that [the] broking model will remain relevant and significant going forward.
“Sure, maybe there are some tweaks around how we pay people, and that’s OK. We’ll roll with that.”
CEO slams borrower-pays model
During ANZ’s media briefing, Mr Elliott was also asked to provide his thoughts on potential changes to broker remuneration.
The ANZ CEO expressed support for a commission-based model but called for increased disclosure.
“I think every [remuneration] system has flaws and conflicts. The right model is one that minimises those [conflicts].
“I personally don’t think there’s anything wrong with the banks paying commission, but I think it should be transparent.”
He went on to add: “I think there should be better work on transparency upfront. I think when the broker is recommending [a loan], they should tell [borrowers] and [let them] make up their own mind.”
Mr Elliott also dismissed the banking royal commission’s call for a borrower-pays model.
“I don’t buy the argument for a [borrower-pays model],” he said. “I understand the logic of it, but I think there are other unintended consequences.
“What will happen then – and we made a submission to the royal commission about it – if you put a flat [borrower-paid] fee in, [the] flat fee would have to be something like $2,500.
“Just imagine what would happen if we did that. Who would that benefit? It benefits people like me who have big mortgages and it really hurts people who have smaller mortgages.”
He added, “If you’ve got a $50,000 mortgage or a $100,000 mortgage, the brokerage is affordable to you.
“So that would make broking a service for rich people.”
ANZ’s mortgage volumes take $10bn hit
In its 1H19 financial results, ANZ reported a 32.2 per cent decline in mortgage settlements, down from $31 billion in 1H18 to $21 billion.
Its total home loan portfolio dropped by $2 billion in the six months ending 31 March 2019, falling from $271 billion to $269 billion.
This follows the release of the Australian Prudential Regulation Authority’s latest monthly banking statistics, which revealed that ANZ was the only big four bank to report negative portfolio growth over the last quarter.
ANZ’s share of the mortgage market also slipped over 1H19, sliding from 15.8 per cent to 15.1 per cent.
Following the release of the bank’s 1H19 results, Mr Elliott told The Adviser that ANZ’s weakened position in the mortgage market was attributable to a “conscious” decision to revise its home lending strategy.
“It was a conscious decision,” he said. “We don’t believe that all loans are necessarily the right loans to book.”
He continued: “We think that in today’s world, when you consider risk – and I mean the broadest definition of risk, not just the credit risk but all the risks surrounding responsible lending – we don’t believe the days of targeting an absolute number in market share is appropriate anymore.
“I am not overly concerned about the raw market share number; it’s about getting the customers you want.”
Mr Elliott went on to state that ANZ’s strategic revision has reflected the “massive shift” in the market.
“Three years ago, pretty much every customer that walked in the door, irrespective of their risk profile, [the] return on writing that loan were all pretty much the same – whether they’re an investor, owner-occupier, paying principal and interest, or interest-only, the return was the same.
“That is no longer the case.
“Today, there’s a massive differentiation between the returns that we generate, so we just need to be selective about the customers we want.
“Our share has grown in the areas that we wanted.”
ANZ reduced its exposure to investors over the half, with the portion of investment loans declining from 29 per cent of home loan flows to 26 per cent, while the share of loans approved to owner-occupiers increased from 69 per cent to 73 per cent.
The portion of interest-only loans also declined, from 14 per cent in 1H18 to 12 per cent.
However, Mr Elliott conceded that the bank’s reaction to increased regulatory scrutiny in the lending environment was “clumsy”, adding that ANZ “over-shot” in its policy response.
“Some of [the mortgage contraction] was not deliberate, it was absolutely a mistake on our part, where we implemented some process changes that made it too hard to get a loan with ANZ,” he said.
“We took too long, it was too difficult, and we were asking for things [that] we didn’t really need to, so we lost a bit of share as a result.
“That’s what we’re fixing-up; that’s what [group executive, Australia, retail and commercial banking] Mark Hand and the team are working on really hard to rectify.
He added: “But we’re not going back to the old days of saying all market share is the same, and we want to grow as much as we can.
“I don’t think that’s the right approach.”
The decline in ANZ’s home lending volumes partly contribute to a 5 per cent reduction in AZN’s statutory net profit after tax, which fell from $3.3 billion in 1H18 to $3.1 billion in 1H19.
Charbel Kadib is the news editor on The Adviser and Mortgage Business.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.
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