Non-bank boss warns of funding pressures

Specialist lender RedZed acquired ME’s business banking portfolio last month, an acquisition that managing director Evan Dwyer says will lift the non-bank’s book value towards $1 billion.

“That’s where you’re going to need to be able to get access to capital and make sure you can continue to grow your business and satisfy all the different requirements that are now on you,” Mr Dwyer told Mortgage Business.

“There is no way I would have been able to start RedZed in 2016 like I did in 2006. It’s incredible, the difference.”

Mr Dwyer said that in the current market there is a continuing trend of smaller lenders being unable to access ongoing sources of funding.

“For instance, if you don’t have an established reputation in securitisation then I think with the way that the regulatory capital is working, it will get increasingly expensive," he said. "The banks aren’t particularly happy just to let you sit there with a line to keep writing. Those smaller businesses that are subscale, under that $500 million mark are going to struggle.”

Mr Dwyer’s comments come after a flurry of M&A activity in the non-bank space in 2016. Consolidation of the mortgage management space has been an ongoing trend for some time. However, larger non-banks such as Homeloans Limited and RESIMAC are now joining forces to create scale.

Deloitte financial services partner James Hickey noted that the more successful non-bank lenders have introduced an element of specialisation into their lending programs, targeting low-doc, self-employed and SMEs borrowers.

The emergence of new digital players or ‘fintech’ lenders was a prevailing theme in 2016, particularly in the SME lending space.

While RedZed’s Mr Dwyer admits that there is a fair amount of activity, he says it is still the established players that are writing the business.

“While I think, there is a future of fintech and fintech disruption, it is very difficult to compete as a start-up in areas like mortgages or commercial finance, just because of the sheer ticket sizes involved,” he said.

“You can raise $10 or $20 million to run a personal loan book or inventory finance but it is really difficult to get your hands on $300 or $400 million. As a result, we haven’t seen much competition from those new entrants in those older, established markets.

“It is pretty much the same players, who are pretty careful about what they do and how they go about it.”

RedZed’s acquisition of the ME business banking portfolio was announced on 6 December and includes commercial and asset finance books valued at $240 million.