The future of the non-bank sector in New Zealand

Lender says there is still significant growth to be achieved

The future of the non-bank sector in New Zealand

Accessing quick, high quality lending is becoming increasingly tough, and the presence of alternative lenders has been growing swiftly in New Zealand in response.

This has led to an increasing number of advisers looking at non-banks for the flexibility and efficiency that they can provide, and according to Basecorp Finance, we can only expect the alternative lending market share to increase over the next few years.

According to Reserve Bank estimates, non-bank lending currently accounts for just under 3% of intermediated credit. However, quick turnarounds are just one quality that has become difficult to find in the mainstream banks, and the growth of alternative lending means that a rejection from a major bank is no longer the end of the line for adviser clients.

Basecorp Finance currently has a lending book of over $750 million, and has positioned itself as a key “second choice funding partner” when main bank lending can’t be accessed.

Speaking to NZ Adviser, Chief Financial Officer John Moody said that although the non-bank space has been growing quickly in New Zealand over the past few years, it still doesn’t have the market penetration that it could have - particularly when looking at the equivalent figures in Australia.

“If you look at Australia, the non-bank sector forms around 10-15% of new lending volumes,” Moody said.

“I think if New Zealand’s non-banks could reach 5-7% of new volumes over the next 3-5 years, that would put us in a fairly comparable position.”

“When you look at a lot of the drivers for non-bank growth over the last few years, we expect that the tailwinds of those will continue for some time,” he explained.

“There has been a lot of regulatory change which has impacted the banks, the CCCFA and capital changes being the most obvious, and that has combined with some other issues - delayed turnaround and response times being a key one. Underwriting standards are also in flux, and there has been a lot of change around the taxation treatment of investors.

“That has translated to bank servicing calculators for rental income being variable between 65-80%, and that in turn translates for a greater need for non-bank products and adviser-assisted solutions. As a business that very much relies on the adviser channel, any growth in that space should translate into better volumes for us.”

Read more: Non-bank lender announces $250 million funding facility

Basecorp Finance has its sights firmly set on growth, and in March issued its first capital markets transaction - $250 million in residential mortgage backed securities (RMBS). Moody said that the additional funding has allowed Basecorp to drop its rates and expand its lending book, and its focus on efficiency and quick turnaround times has also resulted in increased business from advisers.

When it comes to efficiency, he noted that Basecorp’s experience in the market has allowed it to offer quick approval channels for customers - something which is becoming increasingly important as the main bank processing times expand into several weeks.

“There are two key things that the bond issue allowed us to do,” Moody said.

“It gave us the funding capacity to be able to service a wider network of advisers and clients, and it also gave us the capacity to be able to drop our rates. We dropped our long-term floating rates to 5.49% from 6.49% off the back of that issue, which was really well received by our advisers, and that’s translated to a book that’s gone from $600 million to just over $750 million.”

“Having flat approval channels is a key advantage for us as an experienced lender, and we have one of the more flexible and pragmatic lending policies in the market,” he said.

“We’ve built a great brand around being focused on quick turnarounds and very high quality service, particularly as options can be very limited for advisers when main bank funding isn’t available. That’s where a service offering from Basecorp can come in.”

Looking ahead, Moody said that the adviser channel would continue to be a strategic priority, as 95% of its business currently comes from advisers.

“We’ve always been very focused on the adviser channel, and we’ve expanded our networks and relationships with new advisers who might not have worked with us before,” Moody explained.

“We’re now a panel lender for most major aggregators, and it’s really been about carefully widening our distribution footprint while maintaining our focus on turnarounds and flexibility.”

“Our business is very much about people and building relationships, and we’re definitely looking to maintain our focus on that,” he concluded.

“Internal compliance and CCCFA preparation has also been a large project for us, and we think we’re largely there now. Brokers will see a bit of change in how they deal with us, but we’re hoping that they’ll be pleasantly surprised.

“We’re also looking at following on from our initial term bond issue, and we’ll be going to market again with another similarly sized transaction in the next 3-6 months. We’ve been very lucky to grow with the support of the adviser channel, and we’re keen to secure new funding lines to ensure we can support them into 2022 and beyond.”

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