I’ve noticed some interesting developments in the Finance Industry lately.
In banks and other lending institutions, there is always a constant battle going on between the Sales area and the Risk & Compliance area. When things are good, the people in Sales rule. Discounts are offered, guidelines are waived, conditions are relaxed, all in an effort to win more business for the bank. The sole aim is to increase Volumes to improve market share for the business.
When things are not so good, Risk takes over. Guidelines are strictly adhered to, no allowance is made for those customers who don’t fit into the box and passing on a deal the bank doesn’t like is commonplace. The sole aim is to stick to the rules so the Quality of business is protected.
Both areas are important and both have important parts to play for any business. The ascendancy of one over the other is dictated by market forces and the share of the market that the Lender wants to achieve.
For a long time Lenders have kept their Credit Guidelines tight, maintaining the status quo with little easing of policies because Risk was the dominant force. Obviously, this attitude was a direct result of the GFC. Recently though, I’ve noticed that some Lenders are advising new policies that will make it easier to borrow. Mind you, these are only small changes to improve income assessment or security acceptance but they are significant in their own way. More importantly they have the effect of allowing greater borrowing because they ease the restrictions put in place to control quality.
Lenders use a variety of means to control how much they lend, other than just interest rates. As a former bank lender myself, I know that much of this is out of sight of the public. For example, increasing assessment rates or not reducing assessment rates when interest rates go down has the effect of lowering your maximum borrowing capacity. On the other hand, increasing the living expenses allowance on their serviceability calculators will produce the same effect.
None of this is obvious to anyone outside the industry but it exists nonetheless. So when the changes start happening I sit up and take notice.
I’m not saying that Lenders are starting to give money out hand over fist, but what I am saying is that there is a growing sense of competition that requires lenders to grow their business. This pressure to grow will inevitably lead to Sales taking over from Risk. Hence, the easing of some policies.
I don’t believe we will see a return to pre GFC lending practices, indeed the NCCP legislation has made that almost impossible however it’s quite clear that as the competition hots up, lenders will be pressured to grow their profits. In that environment it’s Sales that will call the shots.
Clearly, the intention of these changes is to allow greater borrowing. That in itself is a positive sign and definitely a breath of fresh air.
If you’d like to chat about how these changing lending conditions may affect you, please feel free to give me a call on 1300 663 836 or email email@example.com