Big bank 'egos' under threat from upstarts

By Aimee McClinchy

Friday 10th March 2000

It will be private non-banks, not a "people's bank" that wage war on the big banks, a billion-dollar Australian home lender claims.

A wave of new-blood lenders is poised to radically change the banking landscape, Peter James, director of Resi Home Loans said.

These Australian non-banks would steal marketshare and "get the banks' egos down," he said.

"They will come from Australia: they see New Zealand as another state. New non-banks won't be from here because they haven't got past the structuring problems yet," Mr James said.

"I don't think [Economic Development Minister Jim Anderton's people's bank] will get off the ground ... but the idea is there. It's part of the revolt."

Mr Anderton this week announced a "people's bank" providing branch services would most likely be created through New Zealand Post. The Public Trust would play a secondary role, for which he would free up legislation to expand its financial services. He called it "the public empire striking back."

The Public Trust and other non-banks in the financial services and home loans market, including Resi Home Loans, today have less than a 5% market share.

But industry analysts say competitive pressures are due to heat up, as in Australia where some 20% of the market is now held by non-banks.

Rating agency Standard & Poor's recently affirmed the AA ratings of all the Australasian major banks - the Commonwealth Bank of Australia, Westpac Banking, Australia and New Zealand Banking Group and the National Australia Bank - but said strong non-bank competitors were "plaguing" them and would intensify pressures.

Standard & Poor's said the possibility of bank mergers and financial sector consolidation, combined with aggressive bank capital management, were also rating sensitivities.

Sovereign Financial Services has already begun shaking the banks' hold here with over $1 billion of loans in its portfolio.

Resi Home Loans has been here since November 1998. But Mr James said it was rapidly expanding and was considering setting up another processing centre in Wellington. In Australia, it has a $3 billion loan portfolio and a AAA rating on its products from Standard & Poor's, well above the main banks' ratings.

Also set to burst onto the scene is its main competitor in Australia, Wizard Financial Services, which has a $A1.5 billion portfolio. It is poised to open a satellite network of lenders nationwide.

Mr James said Resi, a 15 year-old company, consistently undercut banks rates (currently at 6.99 compared with an average 7.5) because it lacked cumbersome infrastructure and did not supply other ranges of (unprofitable) products. It also had no fees.

"It's just a computer programme, once it's in place, transactions don't cost us, so why charge?," Mr James said.

Resi offers new-style products including a "clean slate" package for those with a bad credit history. It has a prospectus in front of the Australian securities commission to raise at least $100 million to expand its commercial services. These services would follow in a few months to here, Mr James said. "The great [banking] change is picking up momentum," he said.

Mergers in response to the competitive pressures have begun with Commonwealth Bank expected to announce a merger with financial services giant Colonial First State.

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