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Super saver scheme to benefit wealthy, says consultant

Super saver scheme to benefit wealthy, says consultant





Miranda Brownlee – 20 Sep 2017

– One consultant expects that wealthy Australians will gain the most advantage from the First Home Super Saver Scheme while the overall take-up from first home buyers will be marginal.

Reece Agland & Associates principal Reece Agland has said that while few people will take advantage of the First Home Super Saver Scheme, it will be mainly the wealthy who can afford to give their children money towards a house.

“From my discussions with younger people, they just don’t have those savings there to put into super — it’s great if they do have that, but a lot of them don’t. The cost of living so high in Australia at the moment, that they just don’t have the spare cash,” said Mr Agland.

“The people who might be able to take advantage of it are wealthy people who can give their kids some money and the kids can then put that money into their super. I don’t think that was the intent of the legislation.”

Mr Agland said this is what mostly happened with the First Home Saver Account initiative from the government, where the government made extra contributions for amounts that deposited into the account.

“The only people that could really do that were the wealthy so it didn’t really work out,” he said.

“You’ve got to question whether the First Home Super Saver Scheme is really worth it for the complications that it’s going to cause in the system.”

Mr Agland said he expects there will be a lot of difficulties in administering the system, especially for super funds themselves.

“I think a lot of [the industry] might put it off to see if it’s taken up by anyone because it’s going to be quite complicated for them to set those amounts aside and the earnings aside, and then attribute those amounts so they can be taken out again,” he said.

“You’ve got to question is it worth their while to do that if not many people are going to take it up?”

The First Home Super Saver Tax Bill, which sets out the details of the scheme, is currently before the House of Representatives.


Mortgage arrears at five-year high: Moody’s

Mortgage arrears at five-year high: Moody’s



Annie Kane  -, 19 Sep 2017


The proportion of Australian residential mortgages more than 30 days in arrears rose to its highest level in five years, according to Moody’s Investors Service.

According to the ratings service, the 30+ delinquency rate rose to 1.62 per cent in May 2017, up from 1.50 per cent in May 2016 and the highest rate since 2013.

Mortgage delinquencies increased to record highs in Western Australia, the Northern Territory and South Australia, the report found, and were also up in Queensland and the Australian Capital Territory over the year to May 2017.

However, arrears declined in New South Wales and Victoria, and fell slightly from record high levels in Tasmania.

Indeed, the 10 regions with the lowest mortgage delinquencies in Australia in May 2017 were all in Sydney and Melbourne, where housing market and economic conditions were “the most supportive for mortgage borrowers”.

The service added that the mining downturn has dampened economic growth in resource-reliant states, such as Western Australia, the Northern Territory and Queensland; eight of the 10 regions with the highest 30+ delinquency rates were in either Western Australia or Queensland.

Final bids received for CBA, ANZ assets

Final bids received for CBA, ANZ assets


Staff Reporter – 19 Sep 2017

AIA and Zurich have emerged as the final bidders for CBA’s life insurance assets, while Metlife and Zurich are in the frame for ANZ’s wealth management business.

CBA chief executive Ian Narev confirmed during a results presentation in August that a “range of third parties” were in discussions regarding CommInsure.

The bank’s life insurance businesses — namely, CommInsure and Sovereign (its business in New Zealand) — are likely to be valued at around $4 billion.

According to a Reuters report, Hong Kong-based AIA Group is one of the final bidders for CBA’s insurance division.

Zurich has also bid for the CBA assets, and is also in the race for ANZ’s life insurance and wealth management business, according to the report.

ANZ chief executive Shayne Elliott has spoken about his desire to exit product manufacturing, which could be via a sale or a public listing.

Zurich is competing with US company Metlife on the ANZ assets, with both companies making bids by the deadline on Friday, 15 September.

The outcome of the ANZ sale is likely to be announced within a month, while the CBA transaction is likely to take longer as more bidders are expected to join the auction, according to the report.

A statement by ANZ posted on the ASX yesterday (18 September) said that the bank would not comment on “speculation”.

“The process is ongoing and ANZ remains in discussion with a number of parties as it continues to work through its options,” said the ANZ statement. “This includes exploring capital market solutions to create a stand-alone business.

“ANZ will continue to take a disciplined approach to this process and will update the market as appropriate.”

A spokesperson for Zurich declined to comment about the auction process.

The group’s open banking platform is currently in pilot. It will be made available more broadly in the coming months.


Macquarie’s move could be very disruptive

Macquarie’s move could be very disruptive



James Mitchell –  19 Sep 2017

OPINION: By taking the lead in open banking data, Macquarie is in an enviable position to win a sizeable share of the lucrative retail banking market.

Macquarie Bank announced this week the launch of its new open banking platform, the first in Australia to give customers control over their everyday banking data and the power to securely manage how they want to share it.

This will be music to the ears of fintechs across the country. It also has significant benefits for the bank.

Trying to attract new customers and grow a retail banking business organically is a difficult exercise. The major banks still dominate, despite the poor satisfaction levels and widespread negative media attention they have received in recent years for a string of scandals.

The fact is, moving banks is a pain. Mortgages have traditionally been the key battleground for onboarding new customers, but even that process can be clunky and cumbersome.

Giving customers the ability to share their banking data (which they own anyway) with other service providers is a revolutionary way of winning new business.

Innovation in financial services has closely followed developments in mobile technology. Online tools and apps that help you track your spending, for example, are just some of the services that Macquarie Bank customers will be able to connect with.

Regular users of these apps will be more than a little intrigued by Macquarie’s announcement this week.

The lender’s open platform leverages Application Programming Interface (API) technology, which approved third-party providers can then connect into to offer new services and experiences.

The bank explained that “customers will have the option to securely connect their personal banking data such as transactions and home loan balances, as well as their business and wealth information, into third-party providers like budgeting apps and accounting software” to create their own personalised banking experience.

Any third-party provider who meets Macquarie’s open platform standards and security criteria can connect.

While the play for Macquarie is clear, this development will no doubt drive innovation and ongoing development of these third-party businesses.

Of course, there are significant security risks around apps that rely on a user’s personal banking information. Macquarie has acknowledged this, and stated that “consumers typically need to reveal their banking login details to use budgeting tools and similar services”.

However, the bank explained that its new platform will mean that customers will never need to give their login details to a third party.

Macquarie customers will be able to manage access to their data in real time though the bank’s app. Authorised third-party providers will have “read only” access to that customer’s data through a secure token, which then reads the data from Macquarie’s systems.

Building a retail banking solution around the customer may seem obvious, but in an environment where the biggest players often make decisions out of arrogance, rather than customer demand, Macquarie’s move is actually quite unique.

“Our customers have been telling us they want to securely connect their information into their favourite accounting software, budgeting app and other innovative services they’re interested in,” Macquarie’s head of personal banking, Ben Perham, said.

“We’ve built a highly personalised digital banking experience, so empowering our customers to securely manage how they want to use their own data is the logical next step.”

He added: “APIs are being used by leading digital companies like Amazon and Google to transform consumer experiences, and we’re excited about the opportunities the technology will bring to financial services.

“We’re looking forward to working with third-party providers and developers to drive new and more personalised solutions for our customers that tie in seamlessly with daily life.”

Macquarie is essentially following its customers, rather than directing them, and adapting its offering to meet the new order of everyday banking.

Ratings agency busts non-bank mortgages myth

Ratings agency busts non-bank mortgages myth





by Sam Richardson – 19 Sep 2017

Non-bank arrears are much lower than the regionals and even the majors, questioning the extension of APRA’s remit to the sector

Fewer than 1 in 100 prime mortgages written by non-banks are in arrears, beating majors and non-major banks, according to international rating agency S&P Global Ratings.

In comparison, major banks arrears rose to 1.11% in July and non-major arrears rose to 2.35%. Non-banks, noted S&P, had achieved a “pronounced improvement” in reducing arrears from 2.99% in January 2009 to 0.85% in July, the only lenders to decrease arrears over the month.

The findings come as non-banks prepare for regulation by APRA, first announced in the Federal Budget.

Non-banks criticized the move in their response to the Treasury and S&P’s figures appear to back up a claim by Pepper global CEO Michael Culhane (pictured): “the performance of Pepper’s loan book before, during and after the GFC demonstrates the fact that careful manual assessment of each borrower’s needs and capacity to pay has resulted in very low levels of arrears and losses for Pepper and our customers.”

Liberty CEO James Boyle told MPA that it was in non-banks’ interest to “deliver outstanding customer service while building balanced portfolios that are diverse in geographies, products, and borrower types, for example. This is even more notable when you consider that all of the non-banks combined do not have the scale of even one-quarter of any one of the major banks.”

Non-conforming vs prime

Arrears for non-conforming loans are considerably higher than prime loans, however.

With non-conforming loans now near-exclusively written by non-banks, an arrears rate of 4.80% is a concern. This number has come down, however, from 4.84% in June and S&P said non-conforming arrears had experienced a similar improvement to non-banks’ prime loans, particularly a “noticeable reduction in low-documentation and higher loan to value loans.”

Low-doc loans now only account for 15% of nonbank lending, down from 22% in 2009. High LVR loans have declined from half of all lending to 28% of lending over the same period.

Helping brokers confront myths

S&P’s figures can also help brokers present non-banks as a viable option to consumers.

Consumer ignorance and suspicion of the non-banks continues to be the main barrier to putting more business with them, according to 38% of respondents to MPA’s Brokers on Non-Banks survey.

In a Senate meeting discussing APRA’s powers over non-banks, Tasmanian senator Peter Whish-Wilson asked APRA chairman Wayne Byres to explain what ‘shadow banking’ was, adding that “I think I know what it is, but I think most people think it is illegal banking and kind of shady and dodgy.”

Recession unlikely but vulnerabilities exist

Recession unlikely but vulnerabilities exist



Jessica Yun – 18 Sep 2017

Australia is unlikely to experience a recession in the near future, but certain “vulnerabilities or excesses” in the economy should be addressed to avoid downturns, says AMP Capital.

Oversupply in the housing market and dependence on growth in China have been flagged as key areas of vulnerability in the Australian economy, according to the latest Econosights report by AMP Capital senior economist Diana Mousina.

While the chance of a recession in the near term was described as “low”, the report pointed to vulnerabilities that could “leave an economy exposed to downside shocks” and then to a recession.

“Most recessions have been preceded by a build-up of excesses,” the report said.

“The outlook for the Australian economy remains good, but not spectacular.

“These vulnerabilities may present more of an issue around 2019 when infrastructure spending tops out (as federal government grants to the states start declining), housing construction is in a down cycle and interest rates start increasing again.”

The rise in house prices has had the effect of raising consumer confidence in spending, making “household consumption (at nearly 60 per cent of GDP)… more reliant on the performance of housing”.

“We see interest rate hikes and a boom in the new supply of dwellings (particularly for apartments) as being the two key near-term headwinds for dwelling price growth and household wealth,” the report said.

Though the RBA might be “slow” to hike interest rates, debt servicing costs would increase, which would impact disposable income; additionally, housing completions were surpassing demand for new housing.

Potentially pushing down price falls further were investors, due to the “high skew of investor loan growth in this housing upswing” that also “increases the risk that they may exit the market if returns deteriorated”.

The deceleration of China’s growth would also impact Australia, the report said.

“This concentrated trade relationship was very helpful during the global financial crisis, when China’s economy held up well, but is now a risk,” the report said.

The three areas of concern outlined by the report regarding the Chinese economy were the management of lowered levels of growth at a “sustainable level over time, without crashlanding the economy”; the growth of the economy with lower levels of debt “after such a large build-up in debt balances”; and the overcapacity of particular industries such as steel.

Other opportunities with China lay in the “boom in the middle-income Chinese consumer”, which opened up prospects “for Australian exports in agriculture, healthcare, education and tourism”.

GDP growth was forecasted to rise to 3 per cent next year, but Australian shares would still underperform compared to other countries in the short term.


CBA’s reputation woes bad for the country

CBA’s reputation woes bad for the country



Tim Stewart – 18 Sep 2017

APRA has said that the recent damage to CBA’s reputation is “unhealthy for the bank, it’s unhealthy for the banking system and it’s unhealthy for the country”.

Appearing before the standing committee on economics this week, APRA chairman Wayne Byres defended the rationale for his organisation’s inquiry into the Commonwealth Bank.

Labor MP Madeleine King pointed to Mr Byres’ opening statement to the committee, which stated that APRA is seeking to make a “constructive contribution to strengthening the reputation and public standing of [CBA]”.

“What part of APRA’s mission is it to help CBA recover its reputation and community standing?” Ms King asked.

In response, Mr Byres said that part of APRA’s remit is not only to ensure that the banks are well capitalised, but to make sure that Australians “understand and trust that [the banks] are well governed and prudently managed”.

“The issue that we sit here with the largest bank in the country with its reputation badly damaged,” Mr Byres said. “It’s unhealthy for the bank, it’s unhealthy for the banking system and it’s unhealthy for the country and the broader community that the bank finds itself in this situation.”

Mr Byres said that because the final report of the inquiry will be made public, it will be “very difficult” for CBA not to respond to its recommendations.

“We’ll have to establish some sort of mechanism that allows for transparency around the extent to which the recommendations are being addressed, and are being addressed in a timely manner,” Mr Byres said.

When it came to the likely themes of the inquiry, Mr Byres said that he was reluctant to guess them lest he be accused of pre-empting the process.

“I think CBA itself has already acknowledged that there are issues around the complexity of the organisational structure and some blurring of accountabilities between different parts of the organisation. But let’s see what the inquiry comes up with,” Mr Byres said.

CGT discount lifted for ‘affordable’ investors

CGT discount lifted for ‘affordable’ investors




by Miklos Bolza – 18 Sep 2017

Under newly released draft legislation, investors will be able to take advantage of a 60% capital gains tax (CGT) discount within the affordable housing space.

In a joint statement on Friday (15 September), Treasurer Scott Morrison and Assistant Minister to the Treasurer Michael Sukkar said the measure was “critical” in the government’s comprehensive housing affordability plan for Australians.

“From 1 January 2018, residents investing in eligible affordable housing will be entitled to a capital gains discount of up to 60% if they hold the investment for at least three years, rather than the standard 50% discount,” they said.

The additional 10% will apply if a CGT event occurs to the owners of a residential dwelling which has been used to provide affordable housing for at least three years (1095 days) over one or more time periods.

The government has defined ‘affordable housing’ as that which is a residential premises both certified and exclusively managed by a community housing provider. Owners will not be eligible to receive a National Rental Affordability Scheme (NRAS) incentive such as a tax offset or payment during the NRAS year.

“These affordable housing measures provide an additional incentive to individual and institutional investors to increase the supply of affordable housing by allowing investors … to retain an increased amount of the capital gains they realise from their investments in affordable housing,” the draft legislation reads.

These changes are listed in the Treasury Laws Amendment (Reducing Pressure on Housing Affordability No. 2) Bill 2017 and will amend both the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953.

The Treasury has asked for interested parties to comment on these proposed laws by either email or post. Submissions will be accepted up until 28 September.

‘Latent risks’ in housing market trigger Genworth downgrade

‘Latent risks’ in housing market trigger Genworth downgrade



Lucy Dean – 15 Sep 2017

LMI provider Genworth has had its A3 credit rating downgraded by Moody’s, with the agency citing “high and rising level of tail risks” as the catalyst.

Moody’s Investors Service has announced a shift in the insurance financial strength rating at Genworth from A3 to Baa1 with a stable outlook. The agency said that it believes Genworth is at risk of a “sharper-than-anticipated downturn in the housing market and an increase in its loss ratio”.

More broadly, the downgrade is the result of Moody’s view that “risks in the Australian housing market have risen, heightening the financial sector’s sensitivity to adverse shocks”.

Moody’s said that the downgrade reflects both the “high and rising level of tail risks” in the housing market and the reduced demand for lenders’ mortgage insurance (LMI) offerings in the Australian market.

“In Moody’s view, these factors outweigh positive developments at Genworth, which include a de-risking of its portfolio and stable regulatory capital,” the agency said.

“Latent risks in the housing market have been rising in recent years, because significant house price appreciation in the core housing markets of Sydney and Melbourne has led to very high and rising household indebtedness.”

Moody’s also expressed concern over “an elevated proportion” of lenders that were lending to housing investors or on interest-only terms.

“While mortgage affordability for most borrowers remains good at the current low interest rates, a reduction in the savings rate and the rise in household leverage are indicators of rising systemic risks and an increased vulnerability to economic or financial shocks,” Moody’s explained.

The macro-prudential measures introduced by the Australian Prudential Regulation Authority (APRA) in 2015 are also considered a contributing factor.

The measures, designed to settle a surging housing sector, directed lenders to restrain growth in higher risk segments of their lending portfolios, such as loans with high loan-to-value ratios (LVR).

A byproduct of this, Moody’s said, was a decline in the number of higher LVR loans, which are the most likely to be insured.

“This development has in turn led to a sharp fall in gross written premiums for Australian LMI providers, with Genworth Australia reporting a 25 per cent fall in gross written premium for FY2016 and a 20 per cent decline for FY2015.

“The shift to lower LTV origination is also putting pressure on the average premium that Genworth Australia is able to charge its customer base: the average premium of Genworth Australia’s flow business declined to 1.65 per cent as at 1H 2017 from 1.82 per cent in 1H 2014.”

Moody’s noted that it does not believe declining origination volumes “pose an immediate concern for Genworth Australia’s credit profile”. Nevertheless, they could over time “elevate the risks of the company’s pricing power” and place downward pressure on market position and profitability.

The other side of the shift to lower LVRs, Moody’s added, is that Genworth’s portfolio has a lower level of risk.

“The stable rating outlook reflects Moody’s expectation that, despite elevated risks in the housing market and the potential for further erosion in Genworth Australia’s customer base, the improvement in the credit quality of Genworth Australia’s portfolio, and the support this provides to its regulatory capital adequacy, should allow the insurer to maintain financial metrics that are within the rating agency’s expectations for a Baa1 rating.”

Moody’s does not consider an upward shift in Genworth’s rating to be likely in the medium term. However, a shift to a positive outlook could occur if household leverage stabilises along with nominal income and price metrics.

Conversely, ratings could shift lower if “credit conditions in Australia continue to deteriorate”. A deterioration could be constituted by a material further increase in private sector credit-to-GDP and/or the household debt-to-income ratios, Moody’s concluded.

CBA ‘skeletons’ have regulators worried

CBA ‘skeletons’ have regulators worried



James Mitchell – 18 Sep 2017 

ASIC chairman Greg Medcraft told a parliamentary inquiry that “there is a fair bit on” for the regulator as it gathers “very large amount of evidence” on a string of CBA scandals.

ASIC appeared before the House of Representatives Standing Committee on Economics on Thursday, 14 September, where chairman Greg Medcraft was asked by committee chair David Coleman MP if he was concerned about CBA’s conduct in light of the recent AUSTRAC money-laundering allegations.

Mr Medcraft explained that he met with CBA chair Catherine Livingstone, as well as the bank’s risk committee, just two days before AUSTRAC launched legal action against the group, but there was “no mention of what happened” during their discussion.

Two days later, Mr Medcraft saw the announcement from AUSTRAC. One week after that, he said that Ms Livingstone “called me to apologise”.

“I think timeliness and transparency are the big issues with this,” Mr Medcraft told the committee. “But we are making inquiries in relation to disclosure, directors duties, breach of financial services laws and disclosure in financial statements,” the chairman said. “We are gathering very large amounts of evidence.”

The ASIC chairman, who will step down from his position in November, said that there is no timetable for regulatory action, telling the committee that the success of ASIC’s work with CBA “depends on their level of cooperation”.

Later in the hearing, Mr Medcraft answered questions from Queensland Liberal MP Scott Buchholz.

“With CBA there is a fair bit on,” Mr Medcraft told him.

“There are lots of skeletons?” Mr Buchholz asked.

“Yes,” Mr Medcraft replied.

BEAR regime a good starting point

Part of the federal budget measures announced earlier in the year included beefing up APRA and ASIC’s powers.

On 7 September, Treasury released the sixth position paper of the ASIC Enforcement Review Taskforce, which concerns ASIC’s power to ban senior officials in the financial sector.

Minister for Revenue and Financial Services Kelly O’Dwyer said that the proposed ASIC powers would complement APRA’s proposed powers to remove banking executives from their positions (or adjust their remuneration) under the Banking Executive Accountability Regime (BEAR).

ASIC’s Mr Medcraft told the parliamentary committee last week that BEAR “is a very good starting point” but is part of a “journey” on ongoing regulation similar to what has been implemented in the UK.

He explained that the accountability regime will require management to demonstrate that they took reasonable steps to stop something going wrong, as opposed to pleading ignorance.

“I do think we are at a starting point. But I think it is part of a journey.”