Day 508: 'We have listened'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 508.
Today in summary: ASIC, APRA and the RBA want major Australian financial institutions to prepare for the end of LIBOR; the NSW Opposition wants to ban predatory cash loan machines; Westpac admits its loans were not like the others; QBE avoids a second strike on executive pay; and ASIC and APRA say they are taking climate change risk seriously.
-- Alex
@AlexESampson
Current banker panic level: 🤑🤑🤑😅🌨
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ASIC has written to the CEOs of major Australian financial institutions to check on their preparations for the end of the London Interbank Offered Rate (LIBOR). This wind up is also supported by APRA and the RBA. ASIC said LIBOR was “deeply embedded” in financial markets globally and was used by many Australian financial institutions in their contracts and business processes, but that everyone would need to move to alternative benchmarks.. Australia is not alone in ending LIBOR, with the UK Financial Conduct Authority advising it would no longer use its powers to sustain LIBOR beyond 2021.
The financial regulators expect all institutions that rely on LIBOR to consider the impact of LIBOR transition on their business, including being aware of the size and nature of their exposures to LIBOR and encouraging them to put in place “robust fall-back provisions” in contracts referencing LIBOR.
The NSW Opposition today introduced notice of a bill to outlaw predatory cash loan machines in the state. Labor said the machines were increasing in number and preyed on struggling individuals and families doing it tough. The machines offer “Small Amount Credit Contracts” that can trap low income earners in debt cycles.
The loans are described as “leases” to avoid caps on ordinary loan costs under national credit laws. Payday lenders can have comparison rates anywhere between 112% and 407%. Instant cash loan machines offer loans of between A$50 and A$1000. The limits increase when users access machines multiple times.
Shadow Minister for Innovation and Better Regulation Yasmin Catley said:
“In the absence of national reforms, NSW Labor is committed to doing what it can and will rid the state of the scourge of these payday loan machines.”
Westpac has conceded it was different from other banks in how it went about assessing customers’ suitability for loans. In the fourth day in the NSW Federal Court Jeremy Clarke SC, for ASIC, argued that from 2011 to 2015 (when the bank changed its policy) Westpac didn’t make proper assessments of customers’ ability to repay mortgages when they changed from interest-only to principal and interest loans. Westpac had the highest exposure among its peers to “risky” interest-only loans.
QBE is the second financial institution to avoid a second strike on its executive pay report this AGM season. The global insurer avoided a spill to its board, a week after AMP avoided the same fate. Shareholder frustration led to the first strike against the report last year after QBE delivered poor financial results. Climate change was another question on shareholders’s minds after the insurer decided recently to cut its exposure to coal mining.
QBE chairman Marty Becker said:
“You made it clear that we needed to do better in 2018, and you also expressed dissatisfaction with changes to our executive remuneration arrangements that were introduced in 2017. We have listened.”
SMH | SBS | The Australian
Speaking at the annual conference of the Australian Council of Superannuation Trustees in Melbourne yesterday ASIC and APRA said they were taking climate change risk seriously. APRA head of insurance Geoff Summerhayes said the risk associated with climate change was “distinctly financial in nature”.
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Today’s burn prize: RBNZ governor Adrian Orr
“We want to make the chances of this happening very small — so small that a banking crisis in NZ shouldn’t happen more than once every 200 years.”
Referring to the New Zealand central bank’s bid to raise minimum capital requirements, Orr argued if banks in NZ failed everyone would bear the cost.
The Commentariat
Richard Gluyas writes in The Australian that Australia’s big banks are on the war path over the New Zealand central bank’s bid to raise minimum capital requirements by A$13 billion-$16 billion for ANZ, NAB and Westpac.
“We’ve seen this movie — or a very similar one — in the recent past, when ANZ flexed its muscles against the Weatherill government in South Australia over its plan to slug the banks with a $370 million budget repair levy.”
FlexiGroup is riding the buy now, pay later wave following a value boom, James Kirby writes in The Australian.
“Unlike many of the unicorns coming through global markets based on ride sharing or social media products, this is old school consumer finance wrapped in a new cloak. In other words it can be profitable. Zip Co and Flexigroup are already profitable, and Afterpay is close to profitability.”
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