Changes introduced by the Commonwealth Bank of Australia (CBA) to its investment lending through brokers last year did ruffle some brokers' feathers, said Aaron Christie-David, managing director at Atelier Wealth.
Christie-David was responding to a question regarding a UBS note citing CBA's ongoing emphasis on its proprietary channels versus the third-party channel as a potential reason for the bank’s slowdown in housing credit growth.
CBA’s home lending business grew at an annualised rate of 2.7% for the quarter ended September 2017, according to its 1Q18 trading update. This was significantly down from the 7.8% it reported for the 12 months to March 2017.
"I do feel CBA could have done a better job in communicating their changes to investment lending through the broker network in 2017. This was a decision they were forced to make to fit within the APRA interest-only cap, and coupled with CBA’s focus on their proprietary channels, it did rub brokers the wrong way," said Christie-David.
He sees the slowdown in CBA’s housing credit growth as but a reflection of its need to tighten its credit policies amid sweeping changes in lending.
"Just like we run our own businesses, they have commercial interests and high fixed costs – staff wages, a retail network, training, compliance – so it’s natural for CBA to want a return on their investment."
At the same time, Christie-David said he understands why the third-party network's sentiment towards CBA is poor.
"Some brokers will feel CBA doesn’t ‘deserve’ their business, but as an industry, we advocate for positive client outcomes, and if CBA is the most suitable lender for our clients, our prejudices shouldn’t impact our clients."
UBS also said in its note released on 17 January that the bank’s slowdown in home loan growth has led to questions as to whether this is a result of damage to its reputation following alleged anti-money laundering breaches.
“While this cannot be ruled out and is likely to have had some impact, the timing suggests other factors are likely to come into play given the usual 60-90 day period between when a loan is approved and funded onto a bank's balance sheet,” said UBS analysts Jonathan Mott
and Rachel Bentvelzen
in the note.
“Alternatively, it could be the 'law of big numbers' as maintaining 24% market share in any competitive industry is a challenge."
They pointed out that CBA can afford to discount more aggressively than other banks and still be able to keep a highly sound level of profitability.
“As a result we expect ongoing mortgage competition in coming periods, especially for owner occupied, principal and interest mortgages.”
UBS said Australian banks have a challenging outlook as the housing market slows and net interest margin comes under pressure from competition and switching.
Data from the Australian Bureau of Statistics shows a flat growth (in trend terms) in the number of owner-occupied home loans issued by banks for November 2017, after an increase of 0.2% the previous month.
On the other hand, the number went up 1.4% for loans financed by non-banks, following a rise of 1.6% in October.
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