Heads from two major banks have called for an industry-wide focus on responsible lending to ensure consistency across first and third party channels.
In an on-stage interview at the Australian Financial Review’s Banking & Wealth Summit in Sydney yesterday (5 April), George Frazis, chief executive of the consumer bank at Westpac, and Catriona Noble, managing director of retail distribution at ANZ, spoke on remuneration within the bank and through the broker channel.
Implementing responsible remuneration strategies across the third party was more complicated than creating a structure for internal banking staff, said Noble.
“With our employees, each bank can work on the principals but work quite independently to what’s appropriate for their business. But I think on third parties, we do really need to approach it as an industry because we don’t want responsible lending to be a point of competitive advantage. We want that to be an industry standard.”
Instead, competitive advantage should remain around the service proposition offered rather than compliance, she added.
The industry could not have distortions between what the banks and brokers were doing, Frazis said, as this would simply move people from one channel to another.
“It does have to be consistent across the whole industry,” he said. “That may require legislation – I’m not sure about that – otherwise it’s going to be a system with a whole market of risk that goes onto it.”
However, third party lending played a vital role in the industry, he stressed.
“If you think about brokers, they are a really important channel and a really important mechanism for people to own their own homes.”
After having spoken to aggregators and brokers, Frazis said both were “absolutely aligned” to doing the right thing by consumers.
“This is not something where we’re coming at it from different directions,” he noted. “The industry as a whole has gone a long way towards this.”
Capping interest-only lending
When asked about APRA’s recent announcement to put a 30% cap on interest-only lending, Noble said this was a good move by the regulator.
“You don’t want to apply a blunt tool to everybody. You have this dilemma going on where you’re trying to get families into housing but you’re also trying to cool off the rate of growth.”
While no one wants to see house prices go backwards, Noble said a levelling off of the trajectory was ideal.
ANZ could handle the tighter 30% cap, she said, as this was the rate the bank was already running at a few years prior.
“It’s come up a bit but we just have to manage that back down and I think that’s very possible.”
Frazis pointed out that the major banks assess interest-only lending by assessing on principal and interest.
“We only provide interest-only loans to those people that actually can afford to pay them off.”
Furthermore, the majority of interest-only customers at Westpac had large quantities of money in offset accounts, he said.
“They’re way ahead on the repayments – about 74%.”
Despite this, Westpac could meet APRA’s 30% requirements although the exact timing requires some consideration, he said.
“If you think about housing applications, they take about a two-month process. As long as there’s a sensible timeline for how we as the banks achieve that, then I don’t think there’ll be major disruptions.”