The storm that was the global financial crisis (GFC) left many non-bank lenders out in the cold. But as American poet Robert Frost penned, “a bank is a place where they lend you an umbrella in fair weather and ask for it back when it rains” – so how is the non-bank sector shaping up against the Big Four now there’s clear skies ahead?
Garry Driscoll, general manager of Mortgage Ezy, says non-banks are experiencing a revival after two years of getting bashed by the banks and the capital markets. “The strong ones who survived are now in a position to claw back market share from the majors.”
And Driscoll is far from alone in that sentiment – Rob Emmett, Collins Securities’ CEO, says while many non-banks were denied access to competitive funding lines during the crisis, “those who had good funding streams in place and an ability to adjust their distribution models, coupled with a differentiated product set have continued about their business and, as a result, have flourished”.
James Boyle, Liberty Financial’s chief operating officer, says the sector certainly consolidated in the wake of the GFC, and those who weathered the storm can now look forward to improved economic conditions ahead.
“We’re certainly not out of the woods yet, but overall the ongoing support of Government through its Australian Office of Financial Management (AOFM) scheme has meant we’ve still got a viable non-bank industry that will compete with banks moving forward,” says Boyle.
Allan Savins, RESIMAC’s chief operating officer, agrees and tips this will give rise to increased competition in the Australian marketplace, giving the big banks a run for their money.
“The resilience shown to continue to lend during such a turbulent period shows that the main non-bank lenders are stable organisations who have much to offer in the form of new products and low interest rates,” says Savins. “RESIMAC spent the time during the GFC focusing on its medium-term objectives, and developing systems and products to enable its mortgage managers to ‘hit the ground running’ when the outlook began to look more positive and consumer sentiment improved.”
So are non-banks set to gain greater market share as the economy improves?
Savins says non-bank lenders should be optimistic about increasing their share of the market, particularly with the banks’ market share hitting an all-time high during the GFC. “This won’t happen overnight,” he says. “Although consumers’ sentiment towards the non-banks is improving, there is still much work to do with regard to growing brand awareness and improving the perception of non-banks to support the competitive interest rates on offer.”
Janelle Rayner, Barnes Homeloans’ executive director, says the proof is in the figures – “Our volumes are up about 60 per cent on last year but there is still some catching up to do.”
For industry veterans, this comes as little surprise. Kim Cannon, FirstMac’s managing director, has been in the non-bank sector for more than three decades and has seen it all before. “The non-bank sector recovered well after the first crash [of the 1980s] and it can do so again – as soon as the economy begins to improve and capital markets free up.”
“The lack and high cost of liquidity has put a squeeze on the smaller players and some have been forced out of the market place,” says Cannon. “An almost total lack of competition in the banking sector due to the dominance of the majors has made conditions extremely difficult for those who remain. The non-bank sector has been forced into hibernation but conditions will improve when the economy picks up, it’s a matter of hanging in there until that happens.”
The answer, then, is a near-unanimous ‘yes’. Driscoll says funding has opened up again and brokers are heading back to mortgage managers in droves, while Emmett points to the positive market indicators for non-banks who have toughed it out and stuck around.
“Competitive funding lines are returning, loan volumes are up and brokers are finally realising the value proposition the non-bank sector offers,” says Emmett. “There is a definite groundswell of support for non-bank lenders from brokers at the moment. Since the GFC, brokers have been put under increasing pressure by the mainstream lenders. Many are now realising the benefits of working with the non-bank sector.”
“There seems to be less trust in the banks as a result of the decisions they made during the crisis and, historically, they’ve been pretty reliable in disappointing customers when they can leverage market power,” says Boyle. “Non-banks offer just as wide a range of products and services as the banks, but also provide more attractive incentives. Non-banks are also better placed to provide solutions to those borrowers whose financing needs are more specialised.”
Published on: Wednesday, October 27, 2010