The collapse of high-profile lenders like Banksia and Provident Capital has had a damaging effect on the public perception of the market segment, but there’s still hope for regeneration, says La Trobe Financial senior vice president asset origination, Paul Wells.
“I think the public are just like all of us in the industry, thinking ‘we’ve had enough of this allegedly highly regulated market permitting such behaviour,’ and that it’s really not good enough. Trust is destroyed so quickly and can take years and decades to be re-established.”
But Wells said history has shown that people forget. Regulators are left to clean up the mess of well-intended institutions which fail and investors become poorer. However, Wells said La Trobe remains in a strong position.
“Over the last six months, we have seen both loan originations and our funds under management increase, with no investment withdrawals in response to any debenture funds being wound down. As usual, discrimination about who you deal with (track record of the firm) and asset quality is key.”
Wells said experienced brokers understand the various underlying asset profiles at different lenders and, increasingly, the specific legal problems within a debenture structure.
“In our view, investments in low-risk assets like residential and small commercial mortgages through appropriately managed investment structures have experienced little to no performance stress in recent years – and our experience suggests that demand for our investment and lending products remain strong.”
However, the biggest problem facing non-bank lenders, according to Wells, is funding.
“It appears that the competitive position of bank independent lenders has been somewhat diluted since the beginning of the GFC and whilst [we] continue to have access to long-term funding, due to our diversified and stable funding model, the biggest challenge to other bank independent lenders is raising cost-effective funding which delivers competitive product and pricing flexibility.”
The fact that many of the products currently on offer ‘look exactly the same’ is because of tighter post-GFC credit acceptance guidelines being placed on lenders securitisation trusts by the big banks - who fund the initial loan origination phase in trusts used by many independent lenders, Wells said.
Yet, Wells said non-bank lenders in the past have provided a higher level of flexibility and product innovation and he says that’s something that hasn’t changed.
“We will see more and more customers whose needs are not being met by the larger lenders and who will need flexible solutions…We also see opportunity in the bank independent brand space, as when you are dealing with RAMS you are really dealing with Westpac and when dealing with Aussie you are really dealing CBA – which is not suitable for everyone.”