Tighter lending hurts business borrowers

Business borrowers are struggling to gain finance under tighter lending criteria, the MFAA has claimed.

MFAA chief executive Phil Naylor said SMEs increasingly have to raise capital from a decreasing number of lenders, as the majors return to dominance in business lending.

He said brokers who could not attract funding from mainstream lenders were being forced to take deals to private lenders where interest rates could range from 10 per cent to 20 per cent.

“Our finance brokers are reporting that many of the smaller banks and the non-bank lenders have left the SME market, especially when it comes to property developing and office equipment and fit-outs,” Mr Naylor said.

“That leaves the large retail banks with most of the market.”

Mr Naylor said brokers reported that the major lenders were clearly cherry-picking the market: many property developers were being asked for larger equity commitments and at least 50 per cent qualified pre sales.

One large lender was asking property developers to refinance their loans so it could exit that sector.

Mr Naylor said finance brokers were frustrated that cash flow lending – where the decision to lend is made on the quality of the business and the receivables – had been dropped in favour of a return to fully secured lending.

“The GFC created a liquidity issue in our banks, and in response most of them have re-absorbed their business finance arms into the main operations of the bank,” said Mr Naylor.

“It means experienced business lenders who negotiated deals with brokers on their business merits, are now subject to more conservative practices.”

“There’s nothing wrong with banks being careful with their lending. However, SME debt finance is an important part of the Australian economy and the MFAA wants to see more competition in this vital area.”

The MFAA’s concerns are backed by Reserve Bank of Australia data that shows lending to businesses declined by 1.7 per cent in the year to February 2011 – a period in which housing credit rose by 7 per cent. The Reserve Bank says the four major banks controlled 86 per cent of the SME debt lending market in September 2010, while the majors only wrote 74 per cent of all business loans.

(Source: Staff Reporter, Thursday, 21 April 2011)

Industry consolidation tops 20pc

The National Consumer Credit Protection Act has resulted in widespread industry consolidation, new data has revealed.

According to the latest statistics from Market Intelligence Strategy Centre, there are currently just 138 active loan writing brokerage groups in the industry – 27 per cent less than this time last year.

But despite the contraction, the data shows these fewer broker groups actually wrote 7 per cent more business in the December quarter, suggesting it was part-time brokers that have dropped out of the industry.

This equated to $14 billion in new lending settled for the months of October, November and December 2010.

The top 5 broker groups, according to the MISC Lender and Broker Cooperative Industry Pool, accounted for 56.4 per cent of all broker loans. But this high level of concentration showed clear signs of competitive pressure.

A year earlier the top 5 broker groups wrote 60 per cent of all broker loans. By comparison, the remainder of the top 20 broker groups increased their market share from 34 per cent to 36 per cent of all settlements on the latest full quarter results.

This industry wide consolidation comes as no surprise to industry pundits.

Earlier this year, Aussie chief executive Stephen Porgess told The Adviser that the onerous responsible lending obligations and education requirements being pushed upon the industry by the new legislation would adversely impact the number of players within the mortgage space.

“There is no doubt we will see a lot more consolidation in the industry moving forward. The amount of time, money and effort we put into being ready for the new regulation is extraordinary. It is our number one focus. And, if we are struggling, and we are struggling to keep up with it because it changes on a day to day basis, I do not understand how the smaller players can cope with all the changes,”

(Source: By Jessica Darnbrough)

Industry urges RBA: leave rates alone

One industry stakeholder is urging the Reserve Bank to leave the official cash rate on hold for the rest of the year.

Loan Market Group’s chief operating officer Dean Rushton said the RBA’s decision to leave the cash rate unchanged at 4.75 per cent yesterday was a “sound move”.

He said there was no reason for the RBA to lift rates this month or any other month in 2011.

“The four rates rises they implemented in 2010 are still having an impact through much of the economy,” Mr Rushton said.

“The RBA should weigh less of the decision on what’s happening in the minefields of Western Australia and focus more on what’s happening to retailers out there.

“There have been some major business failures recently and if you walk through any suburban shopping centre or retail strip you will see shops that have closed down.

“Consumer sentiment remains soft and many elements of the economy, including the home finance market, continue to lag.

"The last thing they need now and in the foreseeable future is for interest rates to go up. Any rate increase would be a serious setback to consumer confidence which is quite fragile at the moment.”

(Source: www.theadviser.com.au, Wednesday, 06 April 2011, Staff Reporter)

NAB Broker explains service snafus

NAB Broker has promised to provide "compelling, consistent" service, after admitting a one-off December 2010 technical glitch had fermented negative perceptions among brokers.

Speaking to over 300 brokers in the ballroom of Sydney's Hilton Hotel yesterday afternoon, Flavell said that based on feedback from its broker network, a desire for constant service was a key priority, and that it was no good being "good one minute and terrible the next".

Flavell said a system enhancement in November 2010 - when the bank removed a piece of legacy software to establish one platform for processing loan applications - had resulted in a period of blackouts when brokers were unable to track the status of these loans via instant SMS messaging, as well as online. At the time, Flavell said there were 270 "in-flight" loan applications.

NAB Broker service feedback data showed that as a result, 38% of brokers were unsatisfied with the bank's service at the time, and only 39% declared themselves satisfied.

However, Flavell said the bank was now resourcing ahead of time and "running rich" in its processing team to ensure consistency. As a result, Flavell said more recent data showed a shift in satisfaction, with 55% of brokers now indicating they are satisfied with the service, and only 22% unsatisfied.

Flavell said he considered the bank's current average turnaround of 7.5 days was "too high", and that the bank would "feel more comfortable" with a turnaround of between five and seven business days, as long as this is provided at least 90% of the time, in line with desires for consistency.

He said that this meant there was an obligation on both parties - both bank and broker - to ensure that loans were submitted appropriately and processed effectively. He declared himself "frustrated" with other banks who indicated that the responsibility for conversions lay entirely with the broker.

Reassuring brokers, Flavell also indicated the bank will hold its commissions at their current level for at least the next few years. He said the commission model had been designed to withstand a business cycle of seven to eight years, and the "principles are still sound" in the middle of the cycle.

NAB Broker figures show that brokers will soon begin to see the long-term benefits of NAB's "ramped" trail commission structure, which pays higher trail commission over time, up to 0.35% after five years.

In chatting with Chris Carn, Head of Homeside Lending, we learned that Homeside (100% owned by NAB) is taking on a new direction, communicating with brokers more and changing their ways.

Lets see if this is true in the coming months...

(Source: By Ben Abbott | 1/04/2011 6:00:00 AM www.brokernews.com.au)

ASIC moves to axe ageism

ASIC has provided new guidance to preclude lenders from discriminating against borrowers on the basis of age.

With some industry pundits predicting NCCP regulations could potentially shut over-55s out of the borrowing market, ASIC commissioner Peter Boxall has said lenders should not take a restrictive approach to older borrowers.

'We are concerned by reports of older borrowers whose employment will reduce, or cease, before the end of the loan term, being refused loans because some lenders are adopting an unnecessarily restrictive approach to meeting the responsible lending requirements," Boxall said.

Boxall commented that older borrowers often have a variety of assets other than those from employment which could be used to service a mortgage.

"Undertaking the range of enquiries required by the legislation will often reveal other ways that they will be able to repay the loan," he commented.

In response to the issue, ASIC has updated RG 209 to include clarification that reasonbable enquiries into a borrower's financial situation can reveal other means by which a loan can be serviced, even when there is no continued income stream. It has also provided new guidance on issues which should be considered by lenders when assessing a borrower's ability to repay a loan. Boxall said responsible lending should not keep people from securing housing finance on the basis of age.

"The new responsible lending requirements in the National Credit Act are an important protection for consumers, but they should not be an inflexible barrier to credit for any segment of the population, and should not prevent consumers obtaining credit that they can reasonably afford," Boxall commented.

(Source: By Adam Smith | 1/04/2011 www.brokernews.com.au)