RAMS lenders bleat over loss of loan

Tensions are rising between RAMS Home Loans franchisees and Westpac over the deletion of a loan to self-employed borrowers.

RAMS franchisees are angry. Picture: Bloomberg News

Tensions are rising between RAMS Home Loans franchisees and Westpac over the parent’s ­deletion of a low-doc loan to self-employed borrowers that accounted for about 40 per cent of franchisee lending flows.

The air is thick with threats of legal action, although Westpac maintains it had no choice under stricter enforcement of responsible lending laws since the Hayne royal commission.

RAMS’s main target segments are the self-employed and first-home buyers.

The most popular home loan for the self-employed was effectively a low-doc product, where borrowers were able to obtain finance without providing full documentation such as tax returns.

However, the requirement for verification of income and expenses was a key theme to emerge from the royal commission.

RAMS, which was bought by Westpac in 2007 for $140 million, said it hadn’t abandoned the self-employed — it just wanted a more complete chain of documents to ensure that the loans it made were affordable.

Franchisees alleged yesterday that Westpac had behaved unconscionably by not complying with the franchise agreement.

“They’ve removed our flagship product and they’re only ­offering very limited extensions to franchise agreements,” one operator said. “It’s like McDonald’s not being able to sell hamburgers, and the business we do write takes much longer to assess than other banks. We think they’re trying to shut us down.”

RAMS managing director Jake Bromwich said withdrawal of the self-employed lending product was made in response to changes to the regulatory environment.

RAMS, he said, was committed to working with franchisees to ensure they were providing the right products and services to meet the needs of its customers.

The business, which has 70 owner-operator franchisees, is believed to have earned about $24m in 2018.

$23bn shock and Orr

Forget the radioactive fallout from the Hayne royal commission — the nation’s four major banks have a bigger problem to worry about right now.

If New Zealand’s all-powerful regulator Adrian Orr has his way, the big four will be passing the hat around for the next five years to raise an extra $NZ25billion ($23.5bn) in capital.

Orr’s objective is to effectively shockproof the financial system, making it capable of withstanding the kind of debilitating crisis that only occurs once in several lifetimes.

The scale of his plan for NZ banks to displace their Nordic counterparts as the world’s safest has alarmed the big four, which account for 88 per cent of industry assets across the ditch.

“The outcome of the royal commission is known; what’s unknown is the capital reforms to come out of NZ before the end of the year and the implication that has for Australia,” Credit Suisse analyst Jarrod Martin says.

The RBNZ has proposed hiking higher-quality tier-one capital from 8.5 per cent to 16 per cent.

There’s a flicker of hope in the market that the Australian Prudential Regulation Authority will factor NZ into account and extend some relief to the banks from a continuing capital build to meet their required tier-one ratio of 10.5 per cent by 2020.

Realists know that the chance of that occurring is precisely zero.

The 10.5 per cent target emerged from the 2014 Financial System Inquiry to ensure that the banks were “unquestionably strong”.

APRA is immovable on the benchmark.

So, if 10.5 per cent is set in stone, the big four look like becoming “unbelievably, unquestionably strong”, with group tier-one capital ratios in a range of 11.5-12 per cent once Orr has his way in New Zealand.

The RBNZ’s aggressive position is the reason why the game plan in Australia has switched from capital management to capital preservation.

National Australia Bank slashed its half-year dividend in last month’s profit reporting season from 99c to 83c, while proceeds from asset sales have been locked away pending the release of the NZ framework.

In the meantime, the RBNZ is staunchly maintaining the line that the big four’s NZ subsidiaries are already operating with an ­average capital ratio of 12 per cent, and that the banks can meet the new requirements by retaining 70 per cent of their profits over a five-year transition period without hitting the brakes on credit growth.

The banks’ rejoinder — in a report for the NZ Bankers Association lobby group — is that the economic cost of the proposed reforms will exceed the benefit by $NZ1.8bn.

Westpac chairman Lindsay Maxsted told The Weekend Australian earlier this month that implementation of the NZ proposals would “severely” lower the bank’s return on equity in that country.

“All of us, not just my bank, would have to look at the situation in terms of, ‘Well, how do we deal with this — is it something that our shareholders just take on the chin?’,” he said.

“That’s not conceivable, so the main thing we need to work through with the authorities is to make it very clear that we think we’re adequately capitalised in NZ, and what the implications would be if we’re forced to hold capital over and above what we’ve set aside.

“Then you have to look at how much you want to invest (in NZ), how do you price, and who do you lend to. All those things are in play.”

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