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The US sub-prime crisis has sent shockwaves throughout the Australian mortgage lending industry, with non-bank lenders arguably hit the hardest.
Rising funding costs and investors losing their appetite for RMBS combined with already lean margins and increased competition is making life hard for some lenders.
But what do the woes of the non-bank sector mean for Australia’s ADIs?
The major banks have been quick to grab media attention and pile pressure on the non-banks, while CBA has already moved to gain ground in the traditional non-bank stronghold of the low doc market.
Tarred with the same brush
So will the banking sector as a whole regain the market share eroded through the proliferation of non-banks over the past decade as a result of the current liquidity crisis?
“It’s all smoke and mirrors,” says Ken Sayer, managing director of Mortgage House.
“Whether you are a major bank, a credit union, mortgage manager or a building society, the cost of funding has gone up. Everyone, as a result, is suffering and feeling the effects of tighter funding.”
Murray Cowan, managing director of Better Mortgage Management, shares Sayer’s sentiments.
“NAB and ANZ have already flagged potential interest rate increases as a direct result of the current ‘credit crunch’,” he says.
“Banks will be unwilling to sacrifice margins to the detriment of shareholders’ returns. Shareholders typically look for profit increases of 10 per cent per annum, so any increase in the cost of funds will most likely lead to increased rates to ensure market expectations are met.
“Therefore it is unlikely they will attempt to use rates to re-capture market share in the current market conditions,” he says.
There may be opportunities for the banks, however.
“They [banks] have an advantage over the non-bank lenders in two areas – the size of their balance sheets and the diversity of their funding, particularly from retail deposits,” says Evan Dwyer, managing director of RedZed Lending.
Nearly 60 per cent of the banks’ funding stems from retail deposits, a portion of their funding which has been relatively unaffected by the US sub-prime meltdown.
This, Dywer argues, has been the catalyst in tipping the funding scale in the banks’ favour.
When one door closes
Market conditions may, however, actually present opportunity to the non-bank sector to reaffirm their position and accreditation within the industry.
InfoChoice managing director, Denis Orrock, says that there’s never been a more crucial time – or better opportunity – for non-bank lenders to communicate properly with their target market.
“It is very important at this stage for non-bank lenders to communicate effectively their brand, services, and position in the industry with their consumers and the media,” says Orrock.
“Mix that with strategic marketing and branding exercises and non-bank lenders can soon boost consumer confidence in their products and reputation in the market – even placing them in a stronger position than before,” he says.
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