Finance Market Update 12 October 18
Property prices continue to slide along with access to credit, is the Banking Royal Commission at fault?
The impacts of the commission so far
The significant and ultimately undesired repercussion from the Banking Royal Commission so far is that it has put banks on edge and they have slowed lending to avoid any further instances of them being splashed across the front page of a news paper making them look like crooks.
This is significant because the intention of the commission was not to slow the credit flow in the economy but to assess the current banking system. But it has slowed credit, and that has impacted access both property prices and businesses access to loans.
It is ultimately undesired because this creates a complex situation in 2 arenas. The first is politically, where leading up to the next federal election where the new PM ScoMo and new Treasurer Frydenburg need to carefully balance their response to the commissions full report due in February 2019 not to over regulate the banks to create a further Credit Crunch.
The second is that it could accelerate a potential recession and housing crash if it slows down the flow of credit too much either through banks perceived risks of how to manage the loans (notably mortgages) or by direct new regulation such as on expense verification which would limit banks speed to get credit into the market and how much credit people can borrow based on their income and expenses.
So while the commission is only part of the way through its actual job in assessing the banking system, the full unintended consequences of its findings and reports are being felt by borrowers for both property and businesses trying to get loans.
Are we there yet?
The Banking Royal Commission’s Interim Report was released recently, and we are about half way through the process.
Already we have seen massive ramifications and fallout from the proceedings, most likely the major issues have already been brought forward, so we might not have such a spectacle going forward.
The man in charge of the commission is Kenneth Hayne, who said “Too often, the answer seems greed”.
This is the dramatic line Hayne used to describe the findings to date, and it speaks volumes for the view he and the commission has on what they have seen so far. The focus on profit over people.
In an oversimplified summary of responses so far by each CEO of a big banks was them effectively saying “we’re sorry, we will try and do better”. Acknowledgement of serious issues, but after repeated calls for a commission into the banking and finance market, is that good enough? The answer in most consumers minds is no.
At Skyward Financial we have found many borrowers being frustrated with the big banks, or banks in general, and are asking about other options, fortunately we work across the finance industry and have access to many different lenders to give our clients options.
The interim report had questions not answers, ones that presumably will tried to be answered in the final report due next February.
What will the final impacts of this be?
We do not know what the final report will contain, but you can bet that it will be scathing on the current banking and finance providers.
The likely implications will be increased compliance for banks and more regulation, which till force lenders to hike rates and reduce access to credit.
The issue with this from a borrower point of view is that costs like additional compliance are generally always passed onto consumers. So while the banks compliance costs and funding costs rise, so will mortgage rates.
It is worth making a point here that it is ironic that the commissions largest impact could be to increase consumers financial costs, because ultimately the commission is designed to make the finance market better, not worse for people.