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Advisers inundated with bank policy changes

Changes in bank procedures are coming through thick and fast as banks scramble to keep up with a flood of regulatory changes.

Mortgage Lab founder and chief executive Rupert Gough says one bank alone made 37 policy changes in the past three months.

Some of these stem from the Credit Contracts and Consumer Finance Act (CCCFA), which has been widely accused of smothering borrowers and brokers in red tape. But others come from new rules such as tighter restrictions on lowdeposit loans, imposed on banks by the Reserve Bank as an inflation-fighting tool.

Gough noted that while one bank had altered 37 policies in the last quarter, others had made changes numbering in the low 30s.

“Changes included splitting a few expense categories into many, and new rules for low-deposit lending.”

Gough found banks were varying quickly between red and green traffic lights for low-deposit loans; at present, most are sitting on a red light. But he was careful about allocating blame - insisting the flood of new rules was not the fault of the banks, who were simply responding to new laws and requirements from Government and regulators as best they can.

The New Zealand Bankers Association (NZBA) attributes the rush of changes to the detailed nature of regulations stemming from the CCCFA law change.

An NZBA statement noted the changes required banks to gather and verify a large amount of information about the loan applicant’s income, outgoings and expenses.

“The list is long, and includes things like accommodation, insurance, school fees, child support, debt repayments, utilities, food, clothing and personal care, medical and transport expenses, savings and investment contributions, entertainment, and tithing.”

The NZBA said the complexity of the new system required banks to design and implement changes, and to train their staff to apply them properly, to ensure they are complying with the new rules.

Some advisers have also complained about different systems from different banks: the multiple changes come in many forms depending on which bank they are dealing with. But the NZBA has ruled out a uniform approach for competition reasons.

“Banks are very much in the business of lending. They are also responsible lenders and take requirements to comply with the law very seriously.”

Avanti maintains its credit rating

Credit ratings agency S&P has retained its existing assessment of Avanti Finance as ‘stable’.

Avanti is now the second biggest nonbank lender in the country, having risen tenfold in a decade to sit behind UDC Finance.

The company has a BB/Stable rating, which was unlikely to change in the near term, the agency said.

Avanti’s total assets were $1.62 billion according to a survey late last year, with S&P finding the company was in good shape.

“Our ratings on Avanti reflect its very strong capitalisation and defendable niche position as a finance provider to those not actively serviced by mainstream banks.

“We view Avanti's lending activities as inherently higher risk than those of mainstream banks, but expect Avanti's diverse product offering and lack of single name concentration to keep its credit losses relatively stable, albeit elevated relative to New Zealand's banks.”

S&P said Avanti's warehouse funding model – securing loans against existing operations – left it susceptible to banker confidence, but the company was making progress to diversify its funding base.

“The stable outlook reflects our expectation that Avanti Finance will maintain a very strong risk-adjusted capital (RAC) ratio of above 15% for the next 12 months, despite continued strong growth in its loan book.

“We also expect Avanti to maintain its underwriting standards and pricing for the risks it assumes, and refrain from entering significant new and higher-risk business segments that may expose the company to materially higher credit losses.”

Avanti and FMT numbers revealed

The two non-bank lenders included in a recent KPMG survey – Avanti and FMT - show strong growth in lending and profitability.

Avanti is now the second biggest non-bank in the survey, with total assets of $1.62 billion, while First Mortgage Trust (FMT) has surpassed the $1 billion mark.

Avanti’s total assets increased 29.09% compared to the previous year, while FMT was up 17.58%.

However, it was a different story when it came to net profit after tax (NPAT). Avanti was up 42.16% to $30.16 million while FMT saw its NPAT fall 2.08%. Despite the drop, the NPAT was still $43.52 million, compared to $44.70 million in the previous year.

Across the Financial Institutions Performance Survey (FIPS) survey of 26 firms, the average increase in net profit after tax was 3.24%.

Avanti saw a good increase in its net interest income, rising 11.73%, while FMT was lower at 3.09%. Both were ahead of the sector average of -8.27%.

The survey also found Avanti pushing ahead of Latitude, while UDC maintained its clear lead, with twice the assets of the next biggest contender.

FMT managed 9.83% growth in gross loans and advances, achieving assets worth $1.099 billion.

Formed in the 1990s after three law firms - Sharp Tudhope, Cooney Lees Morgan and Holland Beckett Law - merged their nominee companies into a mortgage trust, FMT also had a net interest rate margin of 6.12%, comfortably ahead of the industry average of 5.69%.

That was a slight fall from 6.93% a year ago, but it still helped the company into fifth ranking overall in its assets.

Avanti recorded an increase in gross loans and advances of 26.65%.

Avanti chief executive Mark Mountcastle says the company has grown rapidly since he joined it seven years ago; its balance sheet at the time was about $150 million, one tenth of its current level.

“The way we went about [getting this growth] was by cultivating the long-standing relationship we had with our introducer base, and broadening our product offering to increase our relevance and give a service to a broader client group.

“In the finance market there are limited opportunities outside of the main banks. We are one of them and we want to extend our reach.”

Mountcastle adds that while Avanti may be second in ranking, the leader, UDC, is owned by Japan's Shinsei Bank, while his firm is owned and run by a New Zealand board. ✚