Didn’t get time to stay up to date with banking news this week? – here’s a quick round up of some of the things that went on.
Some discussion this week on the changes in responsible lending coming in the next couple of months, profitability of the big banks, Fixed Interest rates, CBA’s leadership in the Australian market, Australian banks in context of global banking, banking crime, Technology, NABS purchase of 86 400 and some people movement in the industry.
Responsible lending changes
A few articles this week criticised the Morrisons Government proposed changes to responsible lending which will make it easier for borrowers to get loans and shift some of the accountability for bad loans to the borrower as opposed to the lender. There are concerns that this could mean that customers taking on more debt than they could afford chasing properties in a bull market.
The Liberal government is celebrating the changes and argues the changes make credit accessible to Australians, reduces red tape and improves competition whilst maintaining protection for the most vulnerable people.
The changes aim to remove responsible lending obligations from the national consumer credit rules where lenders will be able to take information from borrowers at face value and will not have to take responsibility for the accuracy of that information.
This is also seen as a step away from the findings of the banking royal commission which is still fresh in many peoples minds. The commission recommended 76 reforms when Scott Morrison was treasurer and his Government only implements 32 of those and is even backtracking on some of those including changes responsible lending.
The governments position is that the changes are needed to kickstart the economy post COVID, APRA plays enough of a role in banking oversight, the laws make banks risk averse and credit becomes difficult and the cost of gathering information is excessive. The counter argument to all of these claims is that housing has never really slowed even after changes, APRA is only concerned with liquidity and balance sheet strength of banks and not how they treat borrowers, a refinement in changes will be better than complete removal and the development of open banking takes away a lot of the cost of gathering data.
Overall there is a sense the Government has abandoned borrowers whilst memories from the banking royal commission are still pretty fresh.
Bank profitability
The big banks are expected to maintain double digit earnings growth over the next 2-3 years despite the fact they have not been able to control costs due to compliance, risk and COVID related costs (although the banks have reduced branches and invested in automation). Despite this, Banks are expected to outperform the market in the coming couple of years.
CBA’s market lead
Brand Finance Australia rated CBA as having the strongest brand in Australia in their annual brand strength report. This is a great achievement considering it was only a couple of years ago CBA was struggling from its AML scandal and then record fine. CBA’s brand strength improvements are thought to be driven by the support they’ve provided customers through the COVID Pandemic with some of the other big 4 banks also seeing improvements.
Not only this, CBA also announced that it was going to further lift its investment in technology which is currently about $1 billion a year and aims to become one of the best in World in digital leadership. CBA completed a 5 year core banking modernisation program which started in 2012 and is now looking to build on this platform. They have already reported that over 6.1 million across Australia are using their app.
CBA partnered with KPMG and Microsoft to use its brand strength, balance sheet and security standards to start its tech venture X15 to develop its digital business and benefit their customers. Unlike the other major banks, CBA looks to wholly own the businesses in its venture along with its founders as opposed to external investments. They are targeting 25 startups in the first 5 years and expect to disrupt their own business to develop technologies to help their customers.
Australia and International banking
Westpac sold its extensive banking operations in Papua New Guinea last year whilst ANZ has also been offloading its investments in PNG and Fiji. These sell offs reduce Australia’s presence in the pacific in a time that China is looking to grow its footprint.
Financial competition in the pacific is getting weaker and ripe for a Chinese entry – If Australia is to have any hope of retaining influence in the region, the government needs to give businesses confidence to invest in these regions and partner with local Governments.
On other news – After the GFC a lot of regulators imposed additional capital surcharges to what were considered systemically important banks (G-SIBs). This provided banks an incentive to shrink in order to avoid the capital surcharge. No Australian bank is considered in a G-SIB at an international level, although they are in the domestic context. Banks that reduced their size according to a paper by the Bank of Internaltional settlements suggests that only banks that were less profitable opted to grow reduce their footprint whilst more profitable banks continued to expand their footprint.
Interest rates
2021 is looking like a year for economic recovery and some economists think that the super low mortgage rates have bottomed out. Usually only about 15% of customers fix their mortgages but this has grown to about 30% with the sharp rates being offered across the industry on the back of record low cash rate. Most major banks are offering rates starting below 2% with some non-majors going even lower.
Although it is unlikely the 0.10% cash rate is going to increase any time soon, the fixed rate market works slightly differently as it’s dependent on movements in the bond market. Recently, bond yields have started seeing a slight upward trend which could spell trouble for the low fixed rates.
Canstar executive Steve Mickenbecker has a different view and thinks although we’re close, we havent hit rockbottom just yet. He thinks that competition is fierce among the lenders and we may see lower rates still.
However trying to time the bottom is tough and rates are pretty low !
Banking Crime
Rosemary Rogers, the former chief of staff to Andrew Thorburn and Cameron Clyne has been sentenced to 8 years in prison for being part of a multi-million dollar fraud scheme. She accepted bloated invoices and benefitted to the tune of $5.54 million. This was through collusion and her ability to approve invoices without substantial scrutiny on her approvals.
ASIC was also hit with a cyber attack but waited 10 days before informing the market that their servers were hacked in a cyber attack and the reason for their systems being down in recent weeks.
About 130 entitites seeking a credit licence were impacted with the hackers being able to access the names of the applicants although it is believed they were not able to open the files and access more detail.
Banking Technology
Eftpos Australia became the 17th council member of the Hedera Governing council joining the likes of Google, IBM, Nomura, Boeing, LG Electronics, Tata amongst others. The council aims to spearhead the next generation of payments technology and Eftpos is the only Australian member.
Klarna, an international buy now pay later company has entered the Australian market and has already signed up 400 users and almost 600,000 customers. It is looking to take on Australian leaders Afterpay and Zip money through its offering of BNPL services.
NAB buys 86400
NAB entered a $220 million to takeover 86400, a neobank that was well established and even offered home loans with a book of $270m along with its deposit offerings with a book of $375m. The takeover is significant for NAB as it is looking to attract more younger customers which is the segment that 86400 played in.
There are concerns that the major banks would continue to buy out emerging neobanks and reduce overall competition in the Australian market. The ACCC is expected to carefully review the deal whilst it’s still subject to approval from regulators. Last year the head of ACCC spoke of lobying the Government for harsher laws to prevent banks taking over competitors. On the other hand, smaller players often have weaker balance sheets and the acquisition can prove beneficial for the customers, Xinja’s recent failure is good reminder of that.
People movement
Shane Buggle has stepped into the CFO role at ANZ after Michelle Jablko resigned last month – a search for a permanent replacement is underway.
ASIC chairman James Shipton is also being replaced as Josh Frydenberg looks to overhaul the regulator. .
Some headlines this week (reference for the above)
The Canberra Times: Morrison Government drops the ball on banking reform
The Australian: Big banks are ready to ride the recovery
AFR: CBA reborn as nations strongest brand
AFR: CBA leads the way in tech
The Australian: CBA adds to tech venture
The Australian: Aussie businesses need to help check China in the Pacific
AFR: The big get bigger
The Age: Fixed rate mortgages close to bottoming out
AFR: Former NAB chief of staff jailes for ‘staggering’ long-term fraud
Corporate watchdog ASIC hit with cyber attack
The Australian: Eftpos joins leaders in payment technology
The Australian: Klarna recruits 575,000 users
The Australian: ANZ moving deckchairs for CFO role as Jablko moves on
AFR: NAB grabs neobank 86 400 for $220m
The Australian: ACCC probes NAB neobank deal
SMH: NAB chases younger clients in 86 400 buyout
AFR: Shipton to go, ASIC shake-up looms