Relax lending rules to boost mortgage competition: Bendigo CEO

The newly minted chief executive of Bendigo and Adelaide Bank has backed lowering the interest rates at which new borrowers are assessed for loans, saying it would improve competition and drive down costs for mortgage holders.

In an interview with this masthead, Richard Fennell said the prudential regulator needs to have a more flexible approach to the serviceability buffer – which requires banks to assess the ability of all new borrowers to service a loan at an interest rate 3 per cent higher than their advertised mortgage rate – as the rates cycle ebbed and flowed.

Bendigo and Adelaide Bank chief executive Richard Fennell’s mid-tier bank is making an aggressive push to expand its mortgage book. Credit: Louie Douvis

“I hear a lot of feedback from our branch network of customers who are wanting to join us, but the thing that is stopping them either taking out a home loan, or indeed refinancing a home loan, is being unable to meet a serviceability buffer that is assessing interest rate north of 9 per cent,” said Fennell, who was appointed chief executive two months ago and has not conducted media interviews until now.

“I was chatting to a young man just last week who was with a non-bank lender. He’s been repaying his home loans for three years, he’s paying 7.49 per cent. We’d love to refinance him, he hasn’t missed a beat. He’s well ahead on his home loan repayments, but he won’t meet serviceability … that’s not good for competition, and it’s not good for customers.”

Debate on lending rules has flared recently after the Senate launched an inquiry into the way financial regulation has been affecting homeownership levels.

While the big four banks are divided on whether lending rules should be overhauled for first home buyers, Fennell said the Australian Prudential Regulation Authority should consider the interest rate cycle instead of issuing a blanket buffer, and relaxation of rules should apply to all investors and mortgage holders.

APRA established a minimum buffer of 2 per cent above the loan rate in December 2014, increasing it to 2.5 per cent in 2019, and then to 3 per cent in 2021 after the Reserve Bank of Australia slashed the cash rate to historical lows. The buffer has been held steady at 3 per cent since then despite the RBA lifting the cash rate to 4.35 per cent, which the vast majority of economists agree has hit a peak.

Fennell’s comments come as his mid-tier bank makes an aggressive push to expand its mortgage book amid dwindling competition in the sector as the big four majors assert their dominance.

He said Bendigo and Adelaide Bank has been increasing its residential loans – as well as market share – over the past six months, and vowed to make that growth his focus as new chief executive by making even bigger investments in technology.

“The key for us to differentiate for ourselves is not to be drawn into using price as the lever to compete [with other banks for mortgage growth],” Fennell said. “We believe the key for us competing is to find a different basis of competitive advantage: it’s things like our reputation, our trust levels.”

Fennell will continue with his predecessor Marnie Baker’s push into business banking, growing its popular digital bank, Up, and driving its new digital lending platform to boost mortgage volumes and protect margins.

The latter has been rolled out to mortgage brokers and potential customers were being informed of their eligibility of a loan within five-and-a-half minutes, Fennell said. He said the bank’s investment in technology such as the digital lending platform had improved productivity.

“We’re writing two to three times the volume through the broker channel than we did previously under the old Adelaide Bank offering, but we’re doing that with around two-thirds of the resources in our lending assessment team,” Fennell said.

The former chief customer officer sees the next two “most exciting opportunities” is the rollout of its business and agribusiness platform, as well a lending platform to its retail division. When he addresses media and investors in 12 months, Fennell will hope he can tell them that business banking – along with residential lending – has grown above system.

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