Lending law change threatens to create an army of people who can't get a bank loan - KPMG report

Monday, 13 December 2021

Finance companies expect loan law changes will lead banks like ANZ, Bank of New Zealand, Westpac and ASB to turn down more loans, forcing more people to look elsewhere for loans.

Changes to lending laws designed to prevent “vulnerable” people from getting loans they can’t afford, could drive more to borrow from finance companies, professional services firm KPMG says.

KPMG’s Non-bank Financial Institutions Performance Survey shows non-bank lenders like car finance and personal loan companies have posted the lowest level of lending growth since the immediate aftermath of the global financial crisis a decade ago.

The non-bank lending industry saw less than 1 per cent lending growth in the year to September 30, with some car financiers posting big declines in their loan books, including Mercedes-Benz Financial Services, and BMW Financial Services.

But KPMG head of banking and finance John Kensington said non-bank lending bosses expected lending law changes that came in on December 1 to result in fewer people being able to get loans from banks.

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That would force them to seek loans from lower tier non-bank lenders, Kensington said.

If the prediction proved correct it could increase the number of the ‘underbanked’, he said.

There is concern among finance companies that a politically-engineered lending crunch could slow the economy, John Kensington, head of banking and finance at KPMG says.

Underbanked refers to people who have a bank account, but have to rely on finance companies for loans.

Kensington surveyed bosses at finance companies such as Instant Finance, Avanti Finance and UDC Finance about the law changes, which require lenders to be much more diligent in checking borrowers could afford loans.

They said there would be more loan rejections.

Some put the decline rate at 20 to 25 per cent, Kensington said.

The focus would be on “safe and easy” lending.

Some borrowers could find themselves locked out of even the lowest tier of legal lenders, Kensington said.

While car financiers have to cope with disruption to global supply chains that resulted in car import volumes fall, some lenders experienced significant growth.

Lenders also feared frontline staff would face anger from frustrated people whose loan applications were declined.

The time taken to approve loans would increase by 25 to 50 per cent, lenders said in the survey.

“This increased time and effort has cost implications which may end up being priced into the interest rates offered as there is no ability to charge higher establishment or administrative fees,” Kensington said.

Public awareness of the law changes was low and an advertising campaign from the Commerce Commission had not materialised, Kensington said.

The lending law changes, which mortgage brokers claim threaten to lock many people out of the housing market, come as the country was opening up.

“If lending slows at the very time it needs to be flowing quickly, it will take longer to get the economy up and running at full speed again,” Kensington said.

While lending growth fell for finance companies, profit after tax across the sector was up by 3.24 per cent. Expected losses from bad loans fell, Kensington said.

While car financiers had to cope with disruption to global supply chains that resulted in car import volumes fall, some lenders experienced significant growth.

The car lenders that had the biggest drops in their total lending, because repayments outstripping new lending, were: Toyota Finance (down $177m), Mercedes-Benz Financial (down $115m), and BMW Financial Services (down $52m).

Avanti Finance's lending grew by just over 29 per cent to end September with total loans of just over $1.6 billion.