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Giving ASIC added authority may create division


Giving ASIC added authority may create division

 

 

by Manuelita Contreras – 22 Jan 2018

The proposed ASIC intervention power over financial and credit products may create a “mismatch” between what customers want and what regulators think is best for them, said law firm Dentons.

The Treasury has released draft legislation to give ASIC an intervention power over financial and credit products. The bill proposes allowing ASIC to order the ceasing or changing of a conduct if it believes a business engages in or is likely to engage in a credit activity that has resulted or is likely to result in significant harm to consumers.

Credit activity will include lending and finance broking.

If approved, ASIC can make such an order even if a product complies with the National Credit Code. However, the regulator will need to consider the nature and extent of the harm to consumers and the actual or potential financial loss or detriment to them.

Also, ASIC must not make an intervention order unless it has consulted with parties, including businesses and their potential customers, likely to be affected by the order.

Dentons said in a note that problems may arise “because consumers often want to borrow in circumstances where regulators consider they shouldn’t borrow”.

“There is potential here for a mismatch between consumers’ ‘naïve’ wishes and regulators’ ‘superior’ knowledge of what’s best for consumers.”

It cited the abolition of deferred establishment fees and small amount credit contract loans as high profile examples in recent years of “major differences in approach”.

“Brokers are often at the cutting edge of offering new products and systems to better serve their customers. Where does this leave brokers who have products blocked that (they) have been marketing in good faith? The answer will depend on the reason for ASIC exercising the intervention power,” Jon Denovan, special counsel at Dentons, told Australian Broker.

“It’s well known that the current hot compliance areas are assessment of living expenses and ensuring that the customer’s requirements and objectives are met – both part of responsible lending obligations. If ASIC decides that a product breaches responsible lending obligations, brokers who followed the product’s procedures could also be found to be in breach,” he said.

The Treasury accepts submissions on the draft bill up to 9 February 2018.

APRA mortgage curbs under scrutiny


APRA mortgage curbs under scrutiny

 

 

 

James Mitchell  – 22 Jan 2018

A leading mortgage professional has criticised the prudential regulator for not providing a clear time frame for its macro-prudential measures or explaining what it is ultimately looking to achieve.

Speaking to The Adviser on a recent Elite Broker podcast, Intuitive Finance managing director Andrew Mirams said that he can’t see the complexities in the mortgage market easing up “anytime soon”.

Australian banks are still required to limit their investor mortgage growth to 10 per cent, while interest-only loans can only account for 30 per cent of new lending.

“Late last year, [APRA chairman] Wayne Byres came out and said these are all temporary measures,” Mr Mirams said. “But he’s never articulated to anyone about how temporary or what measures might change in the future or what their actual outcome.

“I think a lot of the things they’ve done, they’ve got right. An investor getting a 97 per cent interest-only loan just didn’t make sense. You’re just putting people at risk should the markets move, and we all know markets move at different times.

“But they haven’t articulated what they were trying to achieve, what sort of timeline and what outcomes they are hoping to get. I think that would help all of us manage client expectations. Because all of us will have lots of clients that are getting frustrated with being told ‘no’. And you can’t really give them an outcome of what or when they might be able to move again.”

In October last year, Mr Byres spoke at the Customer Owned Banking Convention in Brisbane, where he indicated that the regulator would like to start scaling back its intervention, provided that banks can continue to lend responsibly.

“We would ideally like to start to step back from the degree of intervention we are exercising today,” Mr Byres said.

“Quantitative benchmarks, such as that on investor lending growth, have served a useful purpose but were always intended as temporary measures. That remains our intent, but for those of you who chafe at the constraint, their removal will require us to be comfortable that the industry’s serviceability standards have been sufficiently improved and — crucially — will be sustained.”

Macro-prudential measures are a relatively new instrument but have becoming increasingly popular across the globe. In addition to Australia, lending curbs are also being used in the UK, New Zealand and Hong Kong.

Last year, the Bank of England confirmed that its own version of APRA lending curbs will become a “structural feature” of the British housing market, forcing Australian economists to begin questioning whether APRA’s macro-prudential measures could be permanent.

AMP Capital chief economist Shane Oliver believes that APRA’s measures, or at least some of them, will become permanent.

“I suspect that, as time goes by, they will likely become a permanent feature because of the control over risky behaviour that they allow over and above that achieved by varying interest rates and because the regulatory framework necessary to administer them will become more entrenched,” Mr Oliver said.

Mr Oliver believes that APRA’s mortgage curbs may be seen as increasingly attractive from a social policy perspective, in that they can “tilt lending away from non-first home owner-occupiers”.

There are other reasons why APRA’s measures are likely to remain.

“Poor affordability and high household debt levels, neither of which are likely to go away quickly,” Mr Oliver said.

Regulators can use Royal Commission evidence, says lawyer


Regulators can use Royal Commission evidence, says lawyer

 

Staff Reporter  – 19 Jan 2018

Law firm Dentons has warned that ASIC and APRA will be able to use evidence collected by the upcoming Royal Commission to ban individuals from the industry.

While evidence collected in the upcoming financial services Royal Commission cannot be used against those giving evidence in either criminal or civil cases, it is available to regulators, according to Dentons.

Speaking to financial services professionals in Sydney on Wednesday, partners John Dalzell and Ben Allen from Dentons — which rebranded from Gadens Sydney in December 2016 — acknowledged that those who appeared in the Royal Commission into banking and financial services would have some “element of protection”.

“That evidence that you give in the Royal Commission cannot be used against you in civil or criminal proceedings that happen after the Royal Commission,” Mr Dalzell said.

Additionally, there would be penalties of imprisonment of up to 12 months if individuals were sacked for appearing in or giving evidence to the Royal Commission.

However, he pointed out that these protective measures did not affect the ability of financial regulators such as ASIC or APRA to exercise their powers.

“[The protections don’t] include hearings that are brought to ban you by ASIC, APRA, and administrative proceedings by any of the regulators,” he said.

“They’re not affected by that – in other words, they can use your evidence against you in any administrative hearing that occurs after that.”

Outlining the terms of reference, Mr Allen said the Royal Commission’s focus centred on five areas: misconduct (where community standards had not been met); the handling of consumer complaints; the adequacy of existing laws; the efficacy of the regulator; and the efficacy of the legal framework.

But, more significantly, he pointed out, was the “number of striking omissions or exclusions that have been carved out” of the terms of reference.

“The terms of reference specifically limit the scope of the inquiry, and they include things such as saying the commission isn’t required to inquire into or make any recommendations in relation to macro-prudential policy,” Mr Allen explained.

“That means any policy of regulation or government that is concerned with containing systemic risk which can have widespread implications for the financial system as a whole beyond simply the banking system.”

The banking Royal Commission has also been asked not to duplicate or compromise inquiries into the sector that had already occurred or were currently occurring, given the number of inquiries that had already been conducted in the sector in previous years, he said.

“Finally, and somewhat unhelpfully, the terms of reference also state that the commission may choose not to inquire into any other matters that the commission doesn’t want to inquire into,” Mr Allen said.

The partners also advised financial services professionals to devise a strategy in dealing with the Royal Commission and to attend relevant hearings in Melbourne that would inform the best choice of witness to give evidence to the commission.

 

Why cryptocurrency is SMSF kryptonite


Why cryptocurrency is SMSF kryptonite

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By: Shelley Banton – 19 January 2018

We are continuing to see the relentless pursuit of a volatile, high risk, overheated investment that has no underlying assets or government regulation to support the price.

As SMSF trustees start to chase higher returns in a low-interest rate economy, interest in investing in cryptocurrencies such as Bitcoin (BTC) is on the rise.

But with the BTC bubble hotly anticipated to burst, is cryptocurrency just SMSF kryptonite in disguise?

As many SMSF trustees (and their advisers!) don’t understand the mechanics of how cryptocurrency works, why are we continuing to see the relentless pursuit of a volatile, high risk, overheated investment that has no underlying assets or government regulation to support the price?

Part of the problem is the fraudulent legitimacy of cryptocurrency enmeshed in the use of the word “currency”.

The ATO has released a guidance paper on cryptocurrency that confirms that BTC (in particular) is neither money or foreign currency. Any comparison between cryptocurrencies and the dollar, euro or pound is therefore redundant.

Crypto assets

One of the best definitions for cryptocurrencies is they are a new asset class that enable decentralised applications. These are electronic ledgers located in a decentralised system that’s continuously updated, open to everyone who uses it and those willing to download it.

In this sense, they are crypto assets, not cryptocurrencies because they serve a new form of software that allows payments without a trusted central party or bank. The technology that underpins this new software is called the blockchain.

With the ASX recently announcing the adoption of a blockchain or distributed ledger technology to replace CHESS, it’s safe to say that decentralised applications are here to stay.

Remember, too, that anyone can create a crypto asset, and BTC is just one of 1,400 crypto assets used to transact on decentralised ledgers. Other popular ones include Ethereum, Litecoin, Dash, Monero, ZCash, Ripple and YbCoin.

Then there are the failures.

The most noted collapse is The DAO which raised over $34 million in 2016 through crowdfunding that investors initially purchased by the truckload. When hackers found and exploited a vulnerability in the technology, they siphoned off one-third of The DAO’s funds resulting in traders dumping The DAO by the truckload.

There’s no doubt that the frequency and impact of cyber security incidents will continue to increase and adversely affect crypto assets.

Sole purpose test

Given that the original purpose of crypto assets isn’t for trading, is this an appropriate investment for an SMSF and should it pass the sole purpose test?

Of course, an SMSF trustee can invest in any asset allowed under SIS Act as long as it is permitted under the investment strategy and trust deed.

But a recent study from UTS Business School tracked illegal BTC use worldwide using data from 2009 to 2017. One-third of all BTC users are using it for illegal activity, with close to half of all transactions associated with buying and selling illegal goods and services, including drugs, weapons and pirated software.

Given the nefarious nature of BTC usage and their soaring value, one could ask: is there much difference between an SMSF trustee taking money out of their fund and going to the casino or racetrack – a big SMSF no-no!

While this conservative attitude may offend true BTC believers, it’s difficult to ignore billionaire investment guru Warren Buffet who said he would never invest in BTC or any other cryptocurrency and has predicted they’ll end badly.

Compliance breaches

Where an SMSF trustee decides to invest in BTC to trade and not just to hold the asset, the main risk is when identification of the other party in the transaction results in compliance breaches:

As crypto assets are complex, they should to be reviewed in light of the SIS Act legislation, especially when SMSF trustees are chasing easy returns without an understanding of how they work.

Hedging BTC

A ‘wallet’ is required to be set up through an online crypto exchange to start trading in BTC. Depositing funds into the wallet allows trustees to buy and sell BTC, make payments, withdraw cash from ATMs and … hedge BTC against major currencies.

When an SMSF traditionally invests in derivatives, a separate derivative risk strategy is required under r13.15(1A) to 13.15(1G) SIS because there is a charge given over fund assets.

The exemptions traditionally available to an SMSF through r13.15(1A) to 13.15(1G) only apply to approved bodies (being domestic and foreign exchanges and clearing houses) to whom SMSF trustees may grant security in respect of certain derivatives listed in Sch 4 of SISR. The list doesn’t include BTC exchanges.

If a fund trades in derivative products using BTC, the fund will be in breach of r13.14 SIS. The reason is that a charge is given over fund assets (the wallet) to undertake hedging activities or make margin deposits to the exchange in BTC to eliminate counterparty risk.

SMSF auditors and advisors need to be aware that BTC exchanges are quickly developing sophisticated unregulated financial instruments, which will result in compliance breaches for SMSFs.

Death of the BTC wallet

One of the biggest headaches will be when an SMSF trustee dies. Typically, the private key and password to access the wallet are known and stored by the user who set it up. Documenting and sharing this information is critical; otherwise, in the event of death, the BTC will be lost because the wallet can’t be accessed.

It’s difficult to think of another asset (unless it’s in a tax haven) that is not recoverable when an SMSF trustee dies. To this extent, ensuring that the BTC wallet details are documented and stored securely should be considered BTC insurance.

Where the BTC is a material asset, the fund should document the fact that precautions have been put in place to securely pass on the BTC wallet details to other trustee/s or beneficiaries in the event of death.

If no such documentation exists, the SMSF auditor may consider qualifying part A of the audit report as fund assets are at risk.

BTC scamming

Many safeguards protect BTC wallets against hackers and scammers, such as two-factor authentication and encryption.

But even the most alert and tech-savvy SMSF trustee can be taken in by scammers who can manipulate Google Search results and direct traffic to a fake, cloned BTC exchange website.

These are known as phishing scams, where a fake website mimics a legitimate website and steals a user’s account details when they try to log in.

In October 2016, the ACCC received 245 reports of BTC-related scams with losses totalling $92,000.

Conclusion

While the high-risk and volatile nature of crypto assets will stop SMSF advisors universally accepting this as a new investment class, it won’t stop SMSF trustees investing in them.

The original purpose of crypto assets is to make uncensored payments, not as an investment tool. Irrational returns on BTC will result in SMSF trustees taking further positions and investing in additional crypto assets for fear of missing out.

Additionally, the speed at which new financial products are appearing on BTC exchanges is concerning (such as the ability to hedge BTC) that will result in compliance breaches for SMSFs.

Some much-needed guidance from the ATO on the risks of investing in crypto assets and whether it’s a suitable asset for SMSFs is long overdue.

The one certainty? For as long as the BTC investment frenzy overtakes a reasoned and sensible approach to maintaining an SMSF for the sole purpose of providing retirement benefits to members, crypto assets will continue to be SMSF kryptonite.

By Shelley Banton, executive general manager, technical services, ASF Audits

New law to increase tax debt transparency


New law to increase tax debt transparency

 

Staff reporter – 19 Jan 2018

The federal government has unveiled new legislation aimed at increasing the transparency of business tax debts, which could be a win for small businesses engaging with suppliers.

Minister for Revenue and Financial Services Kelly O’Dwyer released draft legislation which proposes authorising the ATO to disclose business tax debts to credit reporting bureaus where the businesses have not effectively engaged with the regulator to manage their debt.

With few exceptions, the legislation will apply to businesses with a minimum of $10,000 owing for 90 days or more. It is effectively the same level of transparency that is available to a bank.

This legislation at its core intends to target phoenix operators and businesses that are at risk of ceasing production. In effect, this should assist small businesses in engaging with companies that are unlikely to ever fulfil their payment obligations.

“Improving transparency by making overdue tax debts more visible will provide businesses and credit providers with a more complete assessment of the creditworthiness of a business,” Minister O’Dwyer said.

“This will reduce the unfair advantage obtained by businesses that do not pay overdue tax debts and encourage businesses to engage with the ATO to manage their tax debt.”

The exposure draft legislation and explanatory materials are available on the Treasury website, and interested stakeholders are being asked to submit their views on the materials by Friday, 9 February 2018.

ANZ agrees to pay $5m for lending breach


ANZ agrees to pay $5m for lending breach

ASIC said today that it is acting against ANZ for loans approved through the bank’s former car finance business Esanda. It has separately taken action against the three finance brokers involved in submitting false documents to ANZ.

ANZ has agreed to pay a $5m fine as part of the settlement.

The bank has admitted 24 contraventions of the responsible lending provisions of the National Consumer Credit Protection Act 2009 (Cth) for car loans approved by Esanda from three finance brokers. ASIC has begun civil penalty proceedings in the Federal Court against the bank.

ASIC alleges that between 25 July 2013 and 12 May 2015, ANZ failed to meet its lending obligations when it relied only on payslips included in 12 car loan applications to verify the consumer’s income, “in circumstances where it knew that payslips could be easily falsified and it had reason to doubt the reliability of information from the particular broker businesses”.

ANZ said it detected and reported the suspected fraudulent conduct by the brokers and that it has disaccredited the individuals responsible for submitting the 12 loan contracts and no longer accepts loan applications from them.

“ANZ has worked closely with ASIC on its investigation of this matter. We take our responsible lending obligations seriously and we have since taken steps to strengthen our ability to prevent and detect fraud by third parties,” said ANZ Group Executive Australia Fred Ohlsson in a statement.

ASIC and ANZ have filed a Statement of Agreed Facts and Admissions in the Federal Court and will make joint submissions proposing that ANZ pay $5 million in penalty. The court will decide how much ANZ should pay.

Proceedings for a first Case Management Hearing is set for 2 February.

Besides paying around $5m to about 320 car loan customers for loans taken out through the three brokers, ANZ will:

•    offer eligible customers the option of entering into a new loan on more favourable terms than the existing loan;
•    provide refunds to some customers who have paid their loan out or had the car repossessed; and
•    remove any default listings resulting from the relevant loan.

Comprehensive credit reporting


Comprehensive credit reporting: the Naked Borrower

 

 

 

by Sam Richardson – 18 Jan 2018

Comprehensive credit reporting has finally arrived in Australia and promises to reveal all when it comes to your clients, writes MPA editor Sam Richardson

Sometimes, very occasionally, the industry really is transformed overnight. When Treasurer Scott Morrison stepped up to the lectern at Melbourne’s Intersekt festival, most of the audience of  entrepreneurs expected more of the usual lip service to innovation: better regulation; more lavish start-up hubs and the like. Instead they got a game changer: the Government will force the major banks to share customer data, starting just eight months from now.

By making comprehensive credit reporting mandatory, Morrison has ended a fight that has lasted for more than three years. The Financial Systems Inquiry of 2014 recommended that lenders share not only negative but all data about borrowers, to help smaller and data-driven lenders make smarter decisions. The major banks, which hold most client data, have done their best to delay the process, and the Australian Bankers’ Association has finally committing to sharing customer transaction data within two years.

The ABA was too late, and it appears that the Government’s patience has run out. Less than 1% of customer data is currently being shared, Morrison observed. By July the major banks will need to share 50% of their data.

That will increase to 100% by July 2019, with non-major banks and potentially non-bank lenders being added shortly after. CCR will have huge consequences, Morrison predicted. “For borrowers, this regime should lead to one thing – a better deal on your mortgage, your personal loan or business loan.”

The benefits of baring all
Morrison’s promise could be the one commitment the Coalition can actually keep. Lenders in the US have shared data since the 1970s, while the UK government is currently pushing through CCR, so Australia is not entering the unknown. For established lenders, access to more data has two potential benefits, Suncorp’s CEO of banking and wealth, David Carter, told MPA. “We should be able to make the origination process quicker, and at some point we should be able to offer differentiated pricing.”

 

Lenders already offer differentiated pricing, hence the higher rates on interest-only loans that are deemed to be more risky, for example. Tailoring pricing to an individual borrower’s risk profile – rather than just a category of borrowers – could be “a great thing for brokers and their customers”, according to John Flavell, CEO of Mortgage Choice. “Some [customers] will definitely notice a difference, and others may not. It all depends on their unique financial situation.”

It’s possible that the introduction of CCR in 2018 and 2019 could prompt a one-off refinancing boom. Data from Experian suggests that many customers would like to renegotiate lower interest rates based on strong financial history (see boxout). Brokers have the client databases and knowledge to target the borrowers who could gain most, at the right time.

Over the longer term, Flavell explains, “the introduction of comprehensive credit reporting will more than likely increase the level of competition between Australia’s lenders”. Non-major lenders have been calling for CCR’s introduction for a number of years.

CCR could even give birth to new lenders, as Morrison acknowledged in his speech. The UK has seen a wave of online-only banks, such as Starling Bank and Monzo, giving borrowers new options in recent years. In Australia, business lenders, including Prospa and SocietyOne, indicate that data-driven lending can be particularly profitable. Six-year-old Prospa has lent over $400m, while SocietyOne will begin credit sharing this month.

Nowhere to hide
For Australian borrowers and their brokers, CCR is an opportunity but also a challenge. As the Consumer Action Law Centre puts it, “the flip side to lower fees and interest rates for some is that costs will increase for others. These ‘others’ will undoubtedly be Australia’s most vulnerable, disadvantaged and financially stressed households”.

Lenders will be able to “profile for profit”, the Consumer Action Law Centre explains, raising rates not only for genuinely risky borrowers but for any they consider undesirable. Consequently, as Suncorp boss Carter says, “all borrowers won’t be equal; they’ll be less equal under comprehensive credit reporting”.

Profiling could nevertheless benefit brokers, although brokers may have to change the way they work. Today, interest rates are widely advertised and easy to explain; under CCR they could go the way of insurance, Carter predicts. “My premium will be different to your premium, even if we live next to each other, because my house and the characteristics of my risk are slightly different to yours.”

Most worryingly for consumers is the prospect of interest rates increasing because of incorrect information. At present, 20–30% of client credit data is inaccurate, lawyer Joe Trimarchi of Trimarchi & Associates told MPA sister title Australian Broker. With the Privacy Act currently unable to enforce correct reporting, this will be another challenge for the government. The ABA has also raised concerns about borrowers being penalised for natural disasters or small business cash flow issues.

 

“All borrowers won’t be equal; they’ll be less equal under comprehensive credit reporting” – David Carter, Suncorp

Finally, CCR doesn’t just make borrowers less equal; it could exacerbate differences between lenders. Suncorp’s Carter is sceptical that CCR can improve competition, because capital requirements for banks still allow major banks and Macquarie to hold less capital than non-majors. In practice, this gives the major banks the ability (if not necessarily the will) to offer cheaper rates to clients.

With borrowers chasing personalised rates, the pricing differences between major and non-major banks could become particularly apparent, Carter says. “What would be good for competition is more of a level playing field on that best-quality risk … if you want to get the true benefits of comprehensive credit reporting into the market.”

For brokers, concerns over competition or increasing interest rates may be a moot point. CCR, as Mortgage Choice’s Flavell explains, will “make the mortgage market more complex and confusing than ever before – which will help to further enhance the broker proposition.”

Insurers to refund millions to customers


Insurers to refund millions to customers

 

 

 

Charbel Kadib – 17 Jan 2018

Two major Australian insurers will refund customers a total of $62.8 million in add-on premiums following an ASIC investigation.

An investigation by the Australian Securities and Investments Commission (ASIC) has found that thousands of customers are entitled to refunds after insurance providers Suncorp and Allianz Australia Insurance sold add-on insurance through car dealerships that were of “little or no value”.

As a result of the findings, Allianz will be required to pay a total of $45.6 million to 68,000 customers following concerns over products sold to customers by the insurer from 1 December 2010 to 30 November 2017.

Suncorp will also be required to refund 41,428 customers a total of $17.2 million after selling add-on insurance premiums through its subsidiary MTA Insurance between 2008 and 2017, which ASIC also deemed of “little or no value” to customers.

ASIC found that refunds were due when sales of Allianz and MTA Insurance products:

  • were unlikely to enable customers to claim on the insurance
  • were duplications of other products
  • were a more expensive level of insurance than the customer needed
  • did not provide rebates to eligible customers

In response to ASIC’s findings, Allianz will:

  • refund customers who were mis-sold insurance that they were unable to claim
  • provide partial refunds to customers sold more cover than needed
  • provide partial refunds to customers who were sold Motor Equity Insurance and also held Allianz comprehensive car insurance on a new car
  • offer rebates to eligible customers

Further, MTA Insurance will be required to:

  • provide refunds to customers who were sold Guaranteed Asset Protection (GAP) policies on new cars after 1 September 2017
  • offer refunds to customers who were sold life and trauma insurance when under the age of 25
  • provide rebates to eligible customers
  • pay a $50,000 community benefit payment

ASIC acting chairman Peter Kell urged insurers to take “active steps” in ensuring that customer are sold appropriate insurance products.

“Add-on insurance has been under the spotlight for some time now. Insurers should be taking active steps to ensure their customers are not being sold products that provide little or no value,” the chairman said.

“ASIC’s work on add-on insurance is all about making sure customers are being sold insurance that meets their needs and, if they haven’t, are appropriately remediated.”

Mr Kell also noted that ASIC’s investigation into mis-sold insurance products was “one of the largest compensation programs” undertaken by the watchdog.

The chairman said: “The refunds offered by Allianz, together with those from other insurers, make up one of the largest compensation programs achieved by ASIC, with over $120 million in refunds to consumers as a result of ASIC shining a spotlight on these poor consumer outcomes.

“Our message to insurers is simple: The needs of your customers must come first in the design, price and sale of your products.”

Mortgage market conditions to reduce bank profitability


Mortgage market conditions to reduce bank profitability: Fitch Ratings

 

Charbel Kadib – 17 Jan 2018

Uncertainty in the Australian mortgage market has prompted concerns over bank profitability from global ratings agency Fitch Ratings.

In its 2018 Outlook: Australian Banks report, Fitch Ratings cited a predicted increase in loan impairment charges and the banking sector’s high exposure to residential mortgages for its decision to downgrade its outlook for 2018.

The ratings agency’s report particularly mentioned an expected rise in loan impairment charges, challenges to asset quality and a drop in write-backs as further justification for its negative outlook.

Fitch also noted that tightened regulations imposed on the industry are likely to reduce business volumes and increase compliance costs, which it expects will have a negative impact on the banks’ bottom line.

“Australian banks’ profit growth is likely to slow in 2018 as global monetary tightening pushes up funding costs, loan impairment charges rise and tighter regulation [impacts] business volumes and compliance costs,” the report read.

Moreover, Fitch stated that the main risks to the banking sector’s stability “stem from high property prices and household debt”, but it added that despite the likely impact on profitability, macro-prudential measures imposed by the regulators have eased concerns over the sector’s vulnerability in the event of a downturn in the housing market.

“[The] proactive approach by regulators to address household debt risks, such as a tightening of underwriting standards and restrictions on investment mortgages and interest-only loans, should offer some protection to banks’ asset quality in the event of a housing market downturn,” Fitch said.

However, the ratings agency believes that at-risk Australians could struggle to manage their mortgage repayments and service their debt if interest rate rises in 2018.

Australian banks are more highly exposed to residential mortgages than international peers, while households could be sensitive to an eventual increase in interest rates or a rise in unemployment, given that their debt is nearly 200 per cent of disposable income.

“A significant deterioration in asset quality in the mortgage sector could undermine bank profitability and weaken capitalisation, although this is not our base case.”

A modest reduction in economic growth in China is also expected to have “sharper” ramifications on the Australian banking sector, with Fitch predicting Chinese economic growth to fall from 6.8 per cent in 2017 to 6.4 per cent in 2018.

Aussie home buyers afraid of auctions


Aussie home buyers afraid of auctions

 

Charbel Kadib – 16 Jan 2018   |

According to a new study, nearly one in five Australians fear buying or selling property through the auction process.

A survey of 2,017 Australians conducted by finder.com.au found that while 60 per cent of respondents had “no opinion” on home auctions, nearly one in five (18 per cent) Australians said that they were “scared” of buying or selling a home at auction.

The study found that 12 per cent of respondents said that auctions did not scare them at all, while a similar proportion said that they “love auctions” because of the “thrill” and it helped them understand the value of their property.

Generation breakdown

The research noted that respondents from Generation Y were more likely to fear the auction process, with over a quarter of respondents (27 per cent) preferring not to buy or sell a property via an auction.

Finder.com.au insights manager Graham Cooke has attributed Gen Y’s trepidation to their dislike of “face-to-face” bidding and suggested that social anxiety is partly to blame.

“The research shows younger Australians are more scared about participating in auctions than older generations,” the manager said.

“Younger generations are used to the comfort and safety of their smartphones, making the idea of face-to-face bidding too terrifying for many.”

Further, 20 per cent of respondents from Generation X admitted that they were “scared” of the auction process, with Baby Boomers the least likely to fear the auction process (with only 7 per cent admitting to auction fear).

Mr Cooke suggested that those with auction anxiety should consider hiring a “professional”, and he highlighted that online auctions are now coming to the fore and may suit those who fear the face-to-face process.

“Online auction bidding is set to come in later this year, and it is likely to be popular with younger ‘digital natives’ who have grown accustomed to buying and selling other items online,” Mr Cooke said.

 

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