A big four bank has noted the “valuable” contribution that brokers have played in its mortgage growth and has reiterated its support for the current remuneration model, amid a 5 per cent drop in its profits.
Following the release of the bank’s full-year 2018 financial results (FY18), ANZ CEO Shayne Elliott said that he was not surprised by the increase in home loans originated through the broker channel, which rose from 51 per cent in FY17 to 52 per cent in FY18 and make up 55 per cent of ANZ’s mortgage flows.
However, in the 12 months to September, ANZ reported that around 8,800 total broker-originated accounts were clawed back.
Speaking of the contribution of the broker channel, Mr Elliott said: “[The] reality is that we’ve had a high dependency or usage of brokers than some of our peer group.
“Consumers are increasingly choosing to go to the broker channel, and the reason why they’re doing that is because the complexity of home loans has actually increased because we now have differentiated pricing between investor and owner-occupier, and interest-only [loans], so it’s become a lot more complicated.
“We also know that in terms of the tightening of the application process, in terms of the verification of income and all those other things, the actual process has gotten a little bit harder for people and so understandably people want help.”
Mr Elliott added: “I don’t think it’s surprising that more and more people in the market are choosing to go to brokers.”
Despite unrelenting scrutiny of the broker channel, Mr Elliott added that he doesn’t believe there is evidence to suggest that consumers are not satisfied with the broker proposition.
“Most people think they get a really good service actually and are happy. Across the industry, we haven’t really seen a lot of complaints about it,” the CEO said.
“There are obviously questions being asked about legal obligations, transparency, who should pay fees, and that will all play itself out.”
He continued: “Brokers are important to us, and they’re a great source of new-to-bank customers. When you’ve got a reasonably small branch network, it’s unlikely that people who are not already customers come to ANZ and ask for a home loan.
“The broker channel is a really attractive way to get new-to-bank customers; our choice is we prefer new-to-bank owner-occupiers. So, yes, brokers are playing a role in that, and we communicate pretty strongly through the broker channel that it is our preference, and we set our pricing appropriately for that.
“I don’t think that’s going to change.”
Brokers have “a stabilising impact”
Speaking to The Adviser, the ANZ CEO also reiterated his support for the current broker remuneration model, claiming that without trail commissions, brokers would be incentivised to “churn” loans.
“There are definitely changes being discussed around the legal obligation of brokers, transparency of broker commissions, transparency of broker ownership, and questions about how they should get paid, whether trails are reasonable or not,” Mr Elliott said.
“We [ANZ] have a view that they are, that they serve a purpose, that without them, brokers would be incentivised to churn customers more. We think they have a stabilising impact, which is in the interest of customers.”
Mr Elliott said that ANZ would support any reforms to the industry that are “well considered” but cautioned against “rash” changes.
“We basically support any reform that is well considered and involves all industry participants,” the CEO said.
“We’re very concerned about rash changes to any of those, without really thinking about the impact on the entire system.
“It’s easy to say, ‘Let’s ban trail, or let’s move to a flat fee’, but I think you’d want to do a consequence review to sit down with a few people who know what they’re talking about and say, ‘What would happen? What would the likely outcome of that be?’”
He concluded: “I’m not smart enough to know what that would be, but I’m sure there are people who can sit there and work it out.”
Mr Elliott’s comments followed the release of ANZ’s FY18 results, in which the bank reported a 5 per cent drop in its cash profits from $6.80 billion to $6.48 billion.
Mr Elliott attributed the decline to costs incurred from the financial services royal commission, with the bank noting that external legal costs associated with the commission totalled $55 million.
However, ANZ’s mortgage book grew from $264 billion in FY17 to $272 billion in FY18, with settlements increasing by 3 per cent over the 12 months.
Despite reporting home loan growth, ANZ’s loan book increased by $8 billion in FY18 (approximately 2,000 new home loan accounts), compared to $18 billion (33,000 new accounts) in FY17, which Mr Elliott attributed to “headwinds” in the market and a revised approach to lending.
“Retail banking in Australia faced strong headwinds with housing growth slowing and borrowing capacity reducing. We continued our disciplined approach to home loan growth by focusing on customers who want to buy and own their own home.
“While this meant we sacrificed short-term revenue growth and higher margins in Australia, particularly in the investor and interest-only segments, it was the right thing to do for shareholders.”
The bank also reported that the proportion of owner-occupied borrowers increased from 63 per cent to 65 per cent and represent 70 per cent of its mortgage flows.
Conversely, the proportion of loans to investors declined from 33 per cent to 32 per cent (29 per cent), with interest-only lending also slipping by 9 per cent, from 31 per cent to 22 per cent, now making up 13 per cent of ANZ’s home loan flows.
ANZ’s share of the home loan market also declined, dropping from 15.7 per cent to 15.5 per cent.
[Related: ANZ CEO chimes in on broker debate]