As oversight of the banks becomes increasingly regulated and punitive, owning a distribution network will become a “significant advantage”, the managing director of Bendigo and Adelaide Bank said.
“Now that doesn’t mean there isn’t a place for third party distribution, because of course there is, customers want the flexibility that that provides, but how those two things diverge or converge over that period is the interesting question for me,” said Mike Hirst during the bank’s presentation of its 2017 financial results yesterday (14 August). “I think having a national footprint that is proprietary to your organisation is going to provide you with much better flexibility in how that plays out.”
Speaking to Australian Broker
later, Hirst said the third party channel will continue to play an important role in the longterm because customers are indicating that that's what they want.
"The point that I was making was that as regulators become more and more interested in the origination process and how it all works and ... responsible lending, etc., then clearly from the bank's point of view there are advantages in respect to knowing all of the answers to all of that with regards to our own channel rather than a third party channel because we have much easier access to our own channel, it's easier for us to monitor what's going on in our own channel, etc.," he explained.
This would affect brokers "if customers were prepared to do what we told them to do but that's not really how it works", he said, so customers will continue to dictate the importance of the channel.
Loan approvals increase in FY17
Bendigo and Adelaide Bank’s new loan approvals increased by 17.7% this financial year to $20m, up from $17m in FY16. Of total new lending, $14m was residential (62% owner occupier and 38% investment). Nearly $6m was non-residential.
The third party channel originated 43% of the residential mortgages in FY17, down 1% from the year before, while the retail channel originated 57%, an increase of 1%.
The bank’s gross loan balance also improved this financial year. Its residential loan book rose by 8.3% to $43m, up from $39m in FY16. From FY16 to FY17, total business lending only increased by 1% from $14.6m to $14.7m.
CFO Richard Fennell said the bank was “very pleased” with its lending growth, particularly in mortgages. While growth has slowed in recent months, Fennell said it could be attributed to the drive to stay within APRA’s lending limits.
“Our retail channel continues to support our residential mortgage lending growth. Through that retail channel, Local Connection as we call it, that’s up 7.7% for the full year. But we have seen a positive contribution to growth also from that third party channel, although fair to say that has been the channel that we have had to pull hardest on to reign in the growth from a lending perspective to stay within the necessary APRA limits," Fennell said.
The bank said it remains below APRA’s 10% investor credit growth cap and has made changes to ensure it will be below the 30% interest-only flows for the September quarter.
Other than the mining states of Western Australia and Queensland, Hirst said arrears remain at historical lows as one would expect under the current interest rates.
The bank reported that 45% of home loan customers are ahead of minimum repayments, with 29% of customers three or more repayments ahead.
The bank’s underlying cash profit was $418.3m, which represents a 4% increase on the previous financial year.