Ending broker channel would be “dramatic”

by Rebecca Pike20 Oct 2018

While being grilled by a parliamentary committee, one major bank CEO has said it would be “dramatic” to end broker services.

As part of a review into the four major banks, NAB CEO Andrew Thorburn was the last remaining to be questioned.

The committee asked him questions on issues such as customer remediation, bankers’ remuneration and small business lending.

Early on in the Friday morning session, he was asked his thoughts about changing the way brokers were remunerated.

While not providing a direct answer to his own thoughts, he said, “I do think when the Sedgewick report was done there was a conversation about should they be paid an upfront fee for a simple and a complex loan, should we make it clearer when you pay a trail to them obviously that’s disclosed, but what they need to do for that.

“I think these things right now are under really serious investigation by our bank and also by the industry itself. I do think we haven’t got to the end of that process but I do think in short there needs to be some changes in this area.”

Later on in the session he was asked again about brokers.

Speaking about the emergence of mortgage brokers, Thorburn said, “I think in the mid-90s Aussie Home Loans came into the market and reduced the standard variable rate. The brokers started to grow out of that because there were more products, introductory rates, fixed rates, split rates, so there was a blizzard of new product innovation and I think brokers stepped in, I think for two reasons.

“The banks weren’t really focused on existing clients and really wanting to deal with them and help them. Banks were closing a lot of branches at the time, taking away that ability and brokers said we can help you navigate a very complex environment.

“I don’t think it was just about the products, it was about multiple properties and income and rural income and so there was a lot of complexity in the whole process, not just in the product and I think they stepped into that breach and they have grown as a result.”

Jason Falinski MP asked what Thorburn thought about closing the channel which was claimed had “been the prime source of misrepresenting people’s income”.

Thorburn said it would be “dramatic, extreme, given that 50% of the volume coming to banks goes through brokers”.

He added, “Those brokers are in many cases professionals, licenced, running small businesses. So the impact on the economy would be dramatic.

“But I think I would come back to we expect brokers to do certain things when they take details from customers to pass that in full to us. We make that decision ultimately on whether we extend credit to the customer, so we look at their income, we definitely go through in a great deal of detail their expenditure to make sure they can afford it.

“We require the customer, even though the broker is dealing with them, to be able to pay P&I back even if they’re getting interest only. And we require them to be able to afford 7.25% per annum as a minimum even though they’ll be paying a lot less in interest rates.

“So I do think we have got lots of checks and balances in that process and I do think while the broker market needs to evolve, they’re playing an important role.”