Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 565.
Today in summary: APRA has relaxed stringent lending restrictions; Australian banks are lagging many of their overseas peers on customer loyalty and service metrics; ASIC will require people applying for an Australian financial services licence to follow stricter rules; and CBA’s three-week delay to bringing in its interest rate cuts could earn it twice as much in interest income as other banks.
Current banker panic level: 🥳🧐😱🤑
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APRA has removed its guidance that ADIs should assess whether borrowers can afford their repayment obligations using a minimum interest rate of at least 7%. Common industry practice has been to use a rate of 7.25%. Instead, lenders are now permitted to review and set their own minimum interest rate floor for use in serviceability assessments.
Under the new rules, effective immediately, banks will allows lenders to use a revised interest rate buffer of at least 2.5% over the loan’s interest rate.
In May APRA began consulting on possible revisions to its guidance on the serviceability assessments for lenders. The ABA made a submission calling for APRA to continue to set a regularly reviewed buffer.
Master Builders Australia chief economist Shane Garrett was thrilled with the news, saying regulatory restrictions on home lending were one of the factors which contributed to the current downturn in new home building activity across Australia.
Despite the consultation on the changes receiving 10 submissions, West Australian Treasurer Ben Wyatt has claimed the move was a direct result of his lobbying to APRA.
Australian banks are lagging many of their overseas peers on customer loyalty and service metrics, a report from Bain and Company has found.
Australia’s major banks have tried various customer programs to become more customer centric over the years, which largely failed because of the banks’ need to focus on short-term profitability rather than on decisions that deliver better long-term customer outcomes.
Instead, a lacklustre experience for many customers has taken its toll. The authors also found restoring trust would require a shift to a “purpose-led culture” and a level of commitment analogous to the safety-first approach that mining companies take.
ASIC will require people applying for an Australian financial services licence to follow stricter rules and be more careful about their applications.
The corporate regulator today released updated requirements for certain applicants to provide further information, such as the full names of the applicant’s responsible officers and a national criminal history check and bankruptcy check for each responsible officer. ASIC will also require two business references that are no more than 12 months old.
CBA’s three-week delay to bringing in its interest rate cuts could earn it twice as much in interest income as other banks, The Australian has reported.
Meanwhile, three days after the big banks announced their cuts Bendigo Bank committed to lower its variable interest rates for home loans by 0.20% a year. Bankwest yesterday announced it would reduce home loan interest rates by 0.19%. The only bank to pass on the full cut has so far been ANZ.
Today’s burn prize: Zurich Financial Services head of savings and investment Matthew Drennan
“In three to five years, you're going to have a situation where you do have a much more independent transparent industry.”
Drennan said while immediate pain was facing the financial advice sector, with a third of advisers expected to leave the industry, he was confident the sector would eventually emerge in better better shape.
Superannuation funds are merging left, right and centre, writes The Australian’s senior banking reporter Joyce Moullakis.
“Merger activity in the A$2.8 trillion superannuation sector is reaching fever pitch, and behind the scenes are discussions suggesting a spate of further deals this year.”
Afterpay investors have been re-examining the investment case, writes GEM Capital Financial Advice financial adviser Mark Draper in the AFR.
“The big elephant in the room is valuation. While rapid revenue growth is assured given its early success in the US, Afterpay must continue to grow sales quickly to justify a forecast market value to sales ratio of about 10 times revenue based on 2021 estimates. Those investors with grey hair will recall that the last time the market priced businesses on a price to sales basis (rather than price to earnings) was during the dotcom boom.”
AFR columnist Patrick Commins questions whether the world is on the brink of a recession.
“One day a bad moon will rise over the world economy. And assuming that growth is not enough to justify rate hikes through 2020, then ‘the next downturn will see policy rates go to effectively zero everywhere’, Deverell warns.”
Record low interest rates are going to reshape not just investment portfolios but the entire financial system, writes banking and finance specialist Jonathan Shapiro in the AFR.
“If anything, low rates will encourage more capital to fund non-banks in the hope of earning an enhanced return. This is certainly what has occurred overseas. So it is up to the banks, regulators and most of all investors to make sure they are suitably prepared for this new world.”
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