Borrowers losing faith in majors: COBA

The Australian Prudential Regulation Authority’s latest quarterly banking statistics revealed that housing loan growth among non-major lenders outpaced that of the big four banks.

APRA reported that growth in housing loan approvals among smaller lenders increased by 0.8 of a percentage point quarter-on-quarter (QOQ) and 4.1 per cent year-on-year (YOY), compared to 0.6 of a percentage point quarterly increase and a 3.6 per cent rise YOY among major lenders.

According to CEO of the Customer Owned Banking Association (COBA) Michael Lawrence, the data reflects the diminished trust in major banks in light of recent scrutiny from the financial services royal commission, prompting a rise in demand for finance alternatives.

“Given the damage to the reputation of the broader banking sector due to misconduct exposed by the financial services royal commission, customers are looking for banking institutions they can trust,” Mr Lawrence said.

“APRA’s latest numbers show that customer-owned banking institutions outpaced the major banks and the broader banking sector in growth in housing loans and deposits on both an annual and quarterly basis.

“This shows that customers want an alternative that puts them first.”

APRA’s statistics also found that:

• total assets in the customer-owned banking sector have surpassed $113 billion
• the sector’s total housing loans reached nearly $85 billion — collectively the fifth largest housing book in Australia
• the sector’s total deposits reached nearly $97 billion — collectively the fifth largest deposits pool in Australia
• the sector made pre-tax profit of $677 million in 2017–18 and paid $199 million in company tax

Mr Lawrence added: “Our sector’s net profit after tax of $479 million is put back to work for our customers by underpinning the sector’s strength and future growth.

“We are profit-making but not profit-maximising. We are not trying to squeeze our customers to please shareholders. We are not perfect, but we are not conflicted about who we are working for.”

The COBA CEO concluded that the “need for genuine customer choice in banking has never been more important”, pointing to the House of Representatives Economics Committee findings, which he claimed suggested that:

• Trust in Australia’s financial sector has been eroded by a corporate culture in some institutions that places profit before customers and sales before service.
• The reputation of Australia’s banking and financial system has been damaged by examples of misconduct, in particular by the four major banks and AMP.
• Evidence provided to the royal commission has exposed parts of the financial sector as having a corporate culture motivated by greed and lacking in moral leadership.

[Related: Investor and IO loan approvals tumble]