Non-bank sector booming

KPMG’s latest Non-Bank Financial Institutions Performance Survey reveals that the sector saw a 10.2% profit increase to $216.77 million in the year to 30 September 2017.

Non-bank lenders - which includes mortgage trusts, credit unions and finance companies – also saw a 13.92% growth in gross lending.

Within that, non-bank mortgage lending jumped up to $2.5 billion from $1.61 billion over the last year.

KPMG head of banking and finance John Kensington says that a key driver of the sector’s strong performance has been the slowdown in lending in the mainstream banking sector.

Banks have been lending more cautiously due to the LVR restrictions on mortgage lending and funding pressures from the higher regulatory capital requirements affecting the big four Australian-owned banks, he says.

“This has meant that most non-bank lenders have been able to capitalise on the flow of business the banks have said ‘no’ to that in the past they might have accepted.”

As a result, the KPMG report finds that credit quality in the sector is robust, with impairment losses and provisioning appearing to be close to cyclical lows in spite of the strong demand for loans.

But the availability of low cost funding appears to have reduced slightly in the sector.

Kensington says a competitive lending market seems to have reigned in the ability of non-bank lenders to pass on the funding rate increase to their customers.

“Many participants noted that the historic love affair with looking after the borrower may be over; it appears that the liquid cash of retail depositors will be the kingmaker as far as funding is concerned going forward.”

The report also notes that a few survey participants noted an increase in the presence of advisers in the market.

It says that advisers seem to be bringing an increasing number of borrowers to the door who have been declined by a previous lender.

A few of those advisers are charging fees that are high in comparison to the establishment fees that a non-bank would be permitted to charge under the Credit Contracts and Consumer Finance Act should the customer approach them directly, the report says.

Q Adviser Group head Geoff Bawden says this could be happening but he didn’t have anything to validate the claim.

“The potential is there for it to happen when the market contracts, as it has, because the market contraction opens up the opportunity for it.”

He says that he wouldn’t encourage his advisers to charge fees in the normal cause of events.

“But any adviser charging a fee needs to quantify the fee commercially and to mandate it in agreement and writing before doing any work. If they fail to do so, they are going into it at their own peril.”