Australia's non-major lenders play a pivotal role in the mortgage lending space. They help to ‘keep the big guys honest’, and this has never been more important than in the current lending environment
Australia’s lending landscape is dominated largely by the big four banks. The majors account for more than 80 per cent of all owner occupied mortgages written each year, according to the Australian Prudential Regulation Authority.
Despite the majors’ hold on the market, however, Australia’s non-majors remain critically important since they force the big four to be competitive on price, policy and broker commissions.
Since the third party channel came to the fore, some of Australia’s non-majors have built a significant presence in the lending space without the assistance of branches, highlighting just how important and strong brokers can be.
This is the third year in which The Adviser has ranked Australia’s non-major banks, and each year the results have offered some surprises. 2012 is no exception.
Each of the lenders performed incredibly well in this year’s ranking.
I’d like to thank all of the brokers who participated in this year’s Third Party Banking Report and took the time to provide their feedback.
In doing so, you are not only delivering an authoritative snapshot of a key part of the lending industry; you are also helping Australia’s non-majors to provide a better service to the third party channel.
Publisher, The Adviser
NON-MAJORS STEP UP TO THE PLATE
The Adviser’s Third Party Banking Report – Non-Major Lenders has revealed a return to form for one particular lender.
THEIR MARKET share may be relatively small, but the importance of the non-major lenders cannot be underestimated.
According to recent data from the Australian Prudential Regulation Authority, Australia’s non-major lenders account for almost 17 per cent of all mortgages written.
While this is a long way behind the big four’s 80 per cent market share, the non-majors have nevertheless increased their presence over the year to date.
Data from AFG indicate Australia’s non-majors have grown their share of the market by 25 per cent over the past 12 months – up from 22-23 per cent in 2011 to 28-29 per cent today.
So, why the change?
AFG’s general manager of sales and operations, Mark Hewitt, says much of the increase can be attributed to the role of first home buyers.
According to Mr Hewitt, young property buyers or first home buyers do not have a strong affinity or loyalty to one particular lender and are thus happy to shop around for the best product from the best lender.
“First home buyers are a very important part of the overall market, both because they create momentum up the property chain and also because their attitudes signal future trends,” Mr Hewitt says. “Today’s generation of first home buyers is very willing to look outside the majors for their mortgage needs. This is good news for competition.”
Borrowers who are refinancing their properties have also shown greater willingness to look outside the majors, with non-majors growing their broker market share to 26 per cent over the past six months.
In this report, The Adviser analyses broker perceptions of the eight non-major banks that distribute funds via the broker channel:
This is the first time in which The Adviser has included St George/Bank of Melbourne/Bank SA in the ranking, since previously St George was associated with the major lenders.
WHILE THE non-major lenders lack the volumes of the big four, they still managed to outperform the major banks across a number of key metrics, including broker interaction and BDM support.
But although they outperformed some of their larger competitors on service, they failed to hit the mark on pricing, policy and product range, with the majors unsurprisingly toppling the smaller players in each category.
It is worth noting however, that while Australia’s major lenders managed to outperform the non-majors on price, policy and product range, the scores that separate the lenders are minimal.
SOME TOP PERFORMANCES
THIS YEAR’S rankings were close, although not as close as last year, when Suncorp Bank pipped Bankwest to secure the top spot.
In this year’s ranking, ING DIRECT re-claimed the top position, having been placed first in the 2010 ranking.
Suncorp Bank took second place, while AMP Bank rounded out the top three.
While all of the lenders performed incredibly well in the ranking, one of the true success stories would have to be Citibank.
In 2010, Citibank was placed last after failing to impress the third party distribution channel across several key metrics, including product pricing and client support.
In 2011, the story was much the same – the lender was placed second to last in the ranking, beating only Macquarie Bank which had recently re-entered the third party distribution space.
Since then, Citibank has made some significant changes to its third party distribution proposition, helping the lender to move rapidly up the ranks and claim fourth position overall.
Out of the eight lenders, four improved their broker satisfaction rating, while three lost ground.
The Adviser used the following methodology to compile this year’s report:
In July and August 2012, brokers who subscribe to The Adviser BULLETIN, the daily email from www.theadviser.com.au, were invited to participate in the survey.
The eight lenders covered were also given the opportunity to offer brokers who write their products the chance to participate.
The survey was promoted twice and remained open for two weeks
Survey data were then assessed and analysed by business research house RFi.
The way a lender prices their products can have a major impact on their market share
A PRODUCT’S pricing will have a significant influence on whether a broker recommends the product to their client.
Any broker worth their salt will tell you the best product for the client’s needs is not always the cheapest – even though some clients simply want the cheapest.
But while pricing is obviously important, it is not everything. Clients – particularly investors – are often after a specific type of product with specific features.
When this happens, product range and policy can have a massive influence on whether a broker recommends a non-major’s product over a major bank’s product.
Lenders can use their products to quickly manipulate market share in particular segments simply by pushing pricing or tweaking credit criteria so their products align with market demand.
Earlier this year, ING DIRECT went to the market and announced it would be making significant and sweeping changes to its product range and policies.
Included in those changes were enhancements to its commercial lending policy.
According to a statement by the lender, ING DIRECT will now consider applications from any area in Australia if the security is located in a designated industrial or retail commercial area.
In addition, the lender announced it would set its interest rates in line with LVRs, benefiting those borrowers with larger deposits.
These changes to policy and product helped ING DIRECT secure first position in one of the three categories.
Similarly, Suncorp Bank’s recent changes to pricing, including fixed rates, helped the lender to secure top position in the other two categories.
With credit growth currently hovering at historically low levels, Australia’s banks have been doing whatever they can to grow their share of the mortgage market, including enhancing their product offerings.
Over the past 12 months, several of Australia’s non-major lenders have broadened their product range in a bid to cater to a wider array of borrowers.
ING DIRECT is one lender that has significantly enhanced its product suite. Over the past 12 months, the lender has relaxed its lending policies, enhanced its commercial product range and introduced LVR-based lending.
It is for these reasons that the lender managed to achieve first place in this particular category, achieving a broker satisfaction rating of 4.00.
This rating is a lot higher than last year’s, when the bank was ranked second, behind Bankwest, with a broker satisfaction rating of 3.85.
Bankwest, on the other hand, did not manage to improve its satisfaction rating. In fact, the lender’s score dropped by 0.41 points to sit at 3.56.
This significant drop caused the lender to fall from first place last year to fifth place this year, behind ING DIRECT, Suncorp Bank, AMP Bank, and St George/Bank of Melbourne/Bank SA.
The only other lender to record a drop in broker satisfaction was Adelaide Bank, which suffered a 0.23 point fall.
The competitiveness of a lender’s product pricing can significantly influence where a broker puts their clients.
While pricing is not the only factor at play when determining whether or not a product is right for the borrower, it does have a key role in the entire process.
In the last 12 months, Australia’s lenders have become incredibly competitive on price.
Many lenders have slashed their rates in a bid to grow their mortgage market share.
Recent research by RateCity found fixed rates are the lowest they have been in three years.
They are, in fact, back to pre-GFC levels, highlighting just how hungry the lenders are for business.
Understandably, the battle for first place in this particular category was closely fought, with just 0.05 points separating first and fourth place.
Overall, Suncorp Bank emerged the victor, thanks, in large part, to its recent spate of interest rate cuts.
In August, Suncorp Bank joined a handful of other lenders to offer three year fixed rates below six per cent.
Trailing slightly behind Suncorp Bank was ING DIRECT, which achieved a broker satisfaction rating of 3.89 – 0.02 behind first place.
Rounding out the top three was Bankwest, which achieved a satisfaction rating of 3.85.
In a tough credit market, lenders know the best way to generate business is to tweak their policies.
They can adjust their lending policy so that they are more flexible or they can reward certain borrowers – which is exactly what ING DIRECT did.
Earlier this year, the non-major amended its policy to reward clients who put down larger deposits on their property.
This LVR-based pricing was warmly received by the third party channel, helping the lender to significantly enhance the way it was perceived by brokers, propelling ING DIRECT to second place in the Policy ranking.
While pipped at the post by Suncorp Bank, ING DIRECT did manage to improve its broker satisfaction rating by 0.19 points, the biggest improvement of any lender in this category.
Only two other lenders managed to improve their broker perception score: AMP Bank and Macquarie Bank both lifted their score and place in the ranking, while the other lenders all lost ground.
“I find St George tends to be quite rigid with policy while other banks with local processing tend to be more flexible”
“Suncorp Bank is particularly restrictive in certain areas including income and employment term”
“Bankwest is becoming less flexible in some areas including one-bedroom units under 50 square metres”
“I find Macquarie and Citibank have a commonsense approach to policy and will work with me to get a deal across the line”
“ING DIRECT are very picky. This is good for arrears figures, but basically I don’t consider ING DIRECT for any loan except the very simple PAYG deals. The easy deals ultimately come down to who has best price, and ING DIRECT doesn’t win on that front very often”
ST GEORGE/ BANK SA / BOMCross sell has become an industry buzzword in the past few years.
In today’s market, with credit growth sitting at historically low levels, it is now critical that brokers offer more than just a mortgage to their borrower.
Today, brokers should look at offering their clients credit cards, personal loans, equipment finance ... the list goes on. However, to successfully cross sell to their clients, brokers need the help and support of the borrower’s preferred lender.
St George/Bank of Melbourne/Bank SA was nominated as 2012’s lender of choice for cross sell opportunities.
The lender managed to secure a broker satisfaction rating of 3.52 – significantly ahead of last’s year’s first place recipient, Bankwest, which received a broker rating of just 3.27.
Many non-major lenders have improved their technology platforms in a bid to make applications easier for brokers
LESS THAN 10 years ago, brokers submitted their loan applications via fax.
Today, the story is somewhat different since many lenders refuse to accept faxes, opting instead to receive all applications online or via email.
The transition has helped brokers to run much more efficient offices.
While all lenders now accept online or email loan applications and supporting documents, some do it better than others. Some of Australia’s non-major lenders possess easy to navigate technology platforms that allow brokers to do their job quickly and without fuss.
In this section, brokers ranked the non-major lenders’ online lodgement capacity and web presence.
Few of the non-major lenders managed to impress the third party distribution channel with their online lodgement capacity in this year’s ranking.
Of the eight lenders ranked, just three managed to increase their broker satisfaction rating.
ING DIRECT was the big winner, improving its score by 0.21 over the past 12 months and securing first place in the category.
Similarly, Macquarie Bank and Citibank managed to improve their broker satisfaction ratings.
The news was not so good for last year’s winner, Bankwest. The lender not only managed to let its satisfaction score slip by 0.37, but its position overall fell to seventh.
For the third consecutive year, ING DIRECT was considered to have the best web portal, with a majority of brokers claiming the lender’s web presence was ‘good’ or ‘very good’.
Better yet, this is the third year that ING DIRECT has managed to improve its broker satisfaction rating, lifting it by 0.16 from last year to 3.62.
Bank of Melbourne/St George/ Bank SA also managed to perform well, taking out second place in the category.
Adelaide Bank on the other hand failed to strike a chord with brokers, receiving a score of just 2.99 and equalling Macquarie’s last place score in 2011.
Lender support can significantly influence where brokers place their business
ASK ANY broker what influences their decisions and they will inevitably say service.
Good service from a lender’s business development manager can mean the difference between getting a loan approved within 24 hours or having it sit in a queue for days.
In addition, if a broker knows they will receive good service from one particular lender, they will be inclined to send more business there in the future as they want to ensure the borrowing experience is as rewarding as possible for the client.
In this report, The Adviser asked brokers to rank each of the eight lenders on their credit assessment staff, client support, broker communication, broker interaction, BDMs, training and education, business support, turnaround times and channel conflict. ING DIRECT shot up the BDM ranking this year to take first place in this category, with an impressive broker satisfaction rating of 3.91.
The lender put a respectable 0.19 points between it and Citibank, in second place.
ING DIRECT’s win affirms the lender’s decision to have some of its BDM workforce ‘desk-bound’.
Earlier this year, the lender announced it would be making some sweeping changes to its BDM workforce. Those changes included taking some of its BDM force off the road and putting them into the office where they can always be on hand to answer calls and respond to broker emails.
Last year’s winner, Suncorp Bank, slipped down the ranking to third position, securing a broker rating of 3.56, while Citibank moved into second position on 3.72
Once again, ING DIRECT was the standout performer in this category, helped by the recent changes made to the lender’s credit support and BDM workforce.
The bank managed to trounce its competitors, beating Suncorp Bank into second place by a healthy 0.23 points.
Suncorp Bank was last year’s winner in this particular category, and while the lender did slip a little in the ranking this year its performance was far from disappointing, with a majority of brokers ranking the credit support staff as “good” or “very good”.
As in the BDM category, St George/Bank of Melbourne/Bank SA was ranked last, with a broker satisfaction rating of 2.81 – significantly lower than the other seven lenders ranked in the report.
This result is unsurprising since the bank has attracted criticism in recent months for letting its level of broker support slip and its turnaround times blow out to weeks. While brokers can control the service they provide to their client, they cannot control the service received from the lender.
The quality of lender support, however, becomes very important as it is a direct reflection on the broker and can have a significant impact on the broker/client relationship.
Last year, brokers saw Suncorp Bank as providing clients with the best after-settlement service. In 2010, they thought it was ING DIRECT that was best at delivering sound client support.
In 2012, the story was much the same, with ING DIRECT and Suncorp Bank battling it out for first place.
ING DIRECT prevailed, winning the category after implementing significant changes to the lender’s third party proposition.
The story wasn’t quite as rosy for some of Australia’s other non-majors, however, with Bankwest slipping from third place in the Client Support category in 2011 to last this year.
The lender failed to strike a chord with brokers, recording a broker satisfaction rating of 3.24. “I find that many lenders simply do not do what they say they are going to do. This leaves a terrible impression with the client and reflects poorly on my business”
Given the competitive nature of the current lending market, effective broker communication has never been more important.
If lenders want brokers to submit clean deals first time, they have to make sure they communicate any changes in their policy or processes effectively to the third party distribution channel.
According to the ranking, ING DIRECT was once again considered to provide the best broker communication.
The lender managed to record an impressive broker satisfaction rating of 3.89 – slightly higher than the 3.74 it achieved this time last year.
Citibank, AMP and St George/Bank of Melbourne/Bank SA were also considered to communicate effectively with their broker partners.
Bankwest and Adelaide Bank on the other hand failed to strike a chord with the broker channel, with both lenders recording only ‘average’ broker satisfaction ratings.
Bankwest slipped considerably in the ranking this year, following a sound performance in 2011 that ultimately delivered the non-major second place overall in the 2011 Third Party Banking Report – Non-Major Lenders.
Not to be confused with broker communication, broker interaction is what a bank does to notify the third party distribution channel of any changes to turnaround times or application delays.
If a lender is good at interacting with its broker partners and conveying details of any processing delays, they will benefit down the track since other brokers will know they can rely on the lender to be honest with them.
ING DIRECT, which has performed incredibly well in this year’s ranking, managed to climb to first place in this particular category.
The bank managed to lift its broker satisfaction rating from 3.37 last year to an impressive 3.78 in 2012.
Last year’s winner, Suncorp Bank, fell to second place with a broker satisfaction rating of 3.42.
Bankwest suffered the biggest fall, with its broker perception score falling 0.31 points to just 3.15.
But even with this drop in broker satisfaction, Bankwest still managed to beat St George/Bank of Melbourne/Bank SA, which secured last place in this particular category.
With a broker satisfaction rating of just 2.92, it is fair to say that the majority of brokers believe Bank of Melbourne/St George/Bank SA is average when it comes to interacting with the third party distribution channel. Channel conflict has always been a significant concern for brokers.
Many worry lenders will churn their clients in a bid to boost their own revenue.
The lender that ranks the highest in this category is typically deemed most trustworthy by the third party distribution channel.
Generally speaking, lenders without a branch presence tend to fair a lot better in the area of channel conflict; as such, it is no surprise to see ING DIRECT top the list.
Similarly, it is not surprising to see Bankwest and St George/Bank of Melbourne/Bank SA, both of which have a strong branch presence, fall to the bottom of the pack.
This is the third consecutive year that ING DIRECT has topped the channel conflict category, with a majority of brokers considering ING DIRECT’s position to be ‘good’ or ‘very good’.
Interestingly, the lender has also improved its broker satisfaction rating in this category each year, which suggests ING DIRECT is becoming better at conveying its focus on broker relationships to the third party distribution channel.
Training and education are crucial, both to brokers and lenders.
To ensure brokers continue to promote their respective lenders’ products, these lenders need to ensure their broker partners are well educated and up-to-date with all the latest policy enhancements.
Moreover, with competition between lenders intensifying, it is more important than ever for lenders to ensure their broker partners have a detailed knowledge of their suite of products.
Suncorp Bank and ING DIRECT tied for the top spot in this category, with both receiving a broker satisfaction rating of 3.45.
ING DIRECT improved its broker satisfaction rating in the area by a notable 0.26, while Suncorp Bank’s score dropped by 0.01 compared to its 2011 rating.
Adelaide Bank was considered to provide the least amount of training and education, with many brokers commenting that the lender rarely hosts PD days, comparing unfavourably with its non-major counterparts.
While lenders often speak about their desire to help brokers grow their businesses, it seems many fail to achieve this goal, with all of the non-majors receiving an ‘average’ rating from brokers when it comes to business support.
The Adviser’s Third Party Banking Report – Non-Major Lenders found that none of the banks managed to strike a chord with the third party distribution channel in this area.
Even ING DIRECT, placed first in this category, received a broker satisfaction rating of just 3.28. While this score is significantly higher than last year’s, it shows that a vast majority of brokers believes the business support offered by the lender is only ‘average’.
That said, ING DIRECT managed to easily outperform the competition in this category, with almost every other lender recording a drop in its satisfaction rating.
Bankwest and Suncorp Bank suffered the biggest drops. Bankwest’s broker satisfaction rating dropped 0.30 from its 2011 score, while Suncorp Bank recorded a 0.24 point drop.
When brokers refer to the service level of a bank or non-bank lender, they are often referring to turnaround time.
Poor turnaround times continue to be an issue for many banks. Importantly, if a broker knows a certain bank is sluggish when it comes to approving loans, they will be inclined to send their business elsewhere – especially if the client has a settlement shortly.
Once again, ING DIRECT was considered to be the standout performer in this category.
ING DIRECT’s decision to put ‘desk-bound’ BDMs on the roster has significantly improved brokers’ perceptions of the lender, which was voted first in an impressive 11 of the 17 categories across the entire Third Party Banking Report – Non-Major Lenders.
The bank received a broker satisfaction rating of 3.62 – 0.38 points higher than last year’s.
St George/Bank of Melbourne/Bank SA rounded out the group, coming last in this category with a broker satisfaction rating of 3.06.
“Bankwest don’t understand the time difference between Sydney and Perth. They do employment check calls after hours (Sydney time) and wonder why they can’t get an answer. This results in more work for the broker who then needs to get bank statements showing salary credits even though we have supplied payslips and PAYG summaries”
Lenders with sound remuneration structures often find it easy to win broker business
THE GLOBAL financial crisis forced Australia’s lenders to trim broker commissions by up to 30 per cent.
Not surprisingly, broker satisfaction ratings for commissions are never expected to be high.
That said, recent enhancements by AMP Bank and Citibank meant some of Australia’s non-majors did particularly well in this section of the survey.
Unfortunately, not all of the lenders managed to impress their broker partners, with Bankwest falling to the bottom of the pack in both commission categories.
This result, however, is hardly surprising given that Bankwest had ended its enhanced commission initiative, upsetting brokers.
In March last year, the lender announced it would pay brokers an additional 10 basis points upfront commission on all loans with an LVR of less than 75 per cent.
The initiative, which ran for a few months, didn’t manage to help the lender’s position in the 2012 ranking.
Adjustments to AMP Bank’s commission structure helped the lender to secure first place in this category, pushing its broker satisfaction rating up by 0.10 to a healthy 3.49.
ING DIRECT was not far behind, securing second place with a score of 3.47. Citibank rounded out the top three, with a score of 3.39.
Meanwhile, Bankwest, situated in the middle of the pack last year, slid all the way back to last place after ending its enhanced commission initiative.
Bankwest was also the only lender to lose significant ground in terms of broker perception, with the bank’s satisfaction rating falling by 0.29 to just 3.02.
On a positive note, however, all of the lenders ranked in this year’s Third Party Banking Report – Non-Major Lenders managed to secure a broker satisfaction score above 3. AMP Bank was once again the big winner in this category, having lifted its broker satisfaction rating by 0.09 points over the last financial year.
ING DIRECT was not far behind AMP Bank, securing a broker satisfaction rating of 3.25 – just 0.01 points above last year’s rating.
Once again, Bankwest suffered the biggest fall, with its broker perception dropping 0.27 points to 2.82.
The drop in the Remuneration ranking can also be attributed to Bankwest’s no longer having its enhanced commission initiative running.
That said, the lender is keen to reintroduce the initiative in the coming months, so Bankwest could be the lender to watch in this category next year.
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