NAB tightens up on SMSF loans, scraps referrer payments

From Friday (29 March), National Australia Bank (NAB) will introduce changes to its lending policy for SMSF corporate entities as part of an ongoing review of its products and policies.

In order to be eligible for SMSF business lending from this date onwards, NAB customers will need to have an existing relationship with NAB of at least two years and have borrowing needs of $1.5 million or greater.

“An existing relationship is defined as a customer that holds a business lending facility for at least two years. This excludes standalone lease facilities, guarantees or credit cards,” NAB clarified.

Borrowers will also need to have a minimum of $5 million in total net assets in SMSF.

Customers will also need to meet other credit parameters, including:

• Principal and interest repayments fully amortised over the term of the loan
• Cash reserves remaining in the SMSF at settlement being the equivalent of 12 months
• Principal and interest obligations
• All members of the SMSF must be in accumulation phase when the funding is provided and for the duration of the loan tenor

NAB stated it will no longer accept new SMSF applications unless all of the criteria are met but will continue to support existing SMSF lending arrangements.

The major bank said its decision to change the lending policy was based on the fact that lending to SMSFs “is more complex and requires additional consideration”.

“For this reason, NAB has altered the SMSF offering to ensure our customers are in the best position to obtain their desired financial outcomes,” it said.

The move forms part of a trend of larger lenders pulling back from SMSF offerings and concentrate on more “simplified offerings”. Indeed, none of the big four banks currently offer SMSF loans for residential purposes.

NAB’s announcement also comes just days after Macquarie Bank announced that it would stop providing residential SMSF home loans altogether from 30 April.

NAB to cease introducer payments

As well as changing its SMSF criteria, NAB has also announced that it will end its introducer payments program.

An introducer or referrer is an individual or business that provides leads to lenders and is often a real estate agent, migration agent, financial planner and other professional services referrers.

Referrers can also include many other types of individuals and businesses, including property developers and non-profit organisations.

Under the law, introducers must comply with certain requirements, including that they do no more than refer the potential borrower to the lender and facilitate the borrower making contact with the lender.

NAB’s introducer program was placed under the spotlight during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, as it looked at intermediated relationships and its impact on lending.

Documents released to the commission, along with testimony from NAB executives, revealed that several NAB employees were allegedly “bribed” by third-party introducers.

The bank has been actively updating its introducer program recently, and the ongoing House of Representatives’ standing committee on economics’ review of Australia’s four major banks has also recently questioned the use of referrers

Ahead of NAB fronting the committee on Wednesday (27 March), NAB CEO Philip Chronican revealed that the bank would cease making referral payments to introducers from 1 October 2019.

Mr Chronican commented: “Through the royal commission, we heard clearly that our actions need to meet the expectations of our customers and the community. We need to be simpler and more transparent to earn trust. We have to put customers first to be a better bank.

“We want customers to have the confidence to come to NAB because of the products and services we provide – not because a third party received a payment to recommend us,” he said.

Mr Chronican said he recognised the significance of these changes for NAB, its bankers and the industry, but said he was certain it was the right thing to do to deliver better outcomes for customers.

“Like other businesses, we will still welcome referrals and will continue to build strong relationships with business and community partners. However, there will be no ‘introducer’ payments made,” he said.

“I understand the significance of these changes for our people and our industry, yet I am certain it’s the right thing to do. NAB has a significant role to play in leading the change our customers and the community want to see.”

NAB noted that several sporting clubs benefit from the introducer payment program, and it has said that those impacted by the change would see “equivalent sponsorship” from the bank.

None of the other major banks have revealed whether they would be changing their payments to referrers off the back of the NAB announcement.

[Related: Comyn questioned over home loan referral conflicts]