Almost half of NZ consumer lending financed by non-banks

“The assumption has been that banks represent the vast majority of lending, but that's not the case”

Almost half of NZ consumer lending financed by non-banks

New data has shown that almost half of consumer lending in New Zealand is being financed by non-bank members of the Financial Services Federation (FSF) - something executive director Lyn McMorran said shows that Kiwis are “embracing choice when it comes to financial services.”

The FSF has released its annual report for FY20/21, where it noted that 47% of personal consumer lending in Aotearoa is being financed through its members. The report also highlighted that only 55% of all loans are approved, which it said demonstrates “careful consideration of responsible lending.”

The FSF itself has seen significant growth in its membership, having grown by 24% over the last 12 months. Its members include a mix of personal consumer, vehicle and home loan lenders, and include the likes of Pepper Money, Prospa, Avanti, and others.

McMorran (pictured) said that the new data shows a strong growth in interest from the public in the alternative lending space, particularly with the main banks having to place tighter restrictions on their lending across the board.

“As we’ve grown and taken more data from our members in terms of their lending, one of the things that came out was just how big that sector is for personal consumer lending,” McMorran told NZ Adviser.

Read more: NZ’s largest non-bank lender joins FSF

“Our members are all reporting reasonable growth in terms of their own books, so we can see the interest in this area increasing.”

“The assumption so far has been that the main banks represent the vast majority of personal lending, but the statistic demonstrated to us is that actually, that’s not the case, and that the non-banks are coming close on their heels,” she explained.

“Our Annual Report also highlighted that we have grown in our number of members, which has risen by about a quarter over the last year.

“There is so much happening in that consumer credit space, and lenders are increasingly looking for a place to go to get the information that they need in order to be fully compliant. We’ve become the central source of truth for that, and I think there’s been quite a big recognition from the non-bank lenders that this is the place to go in order to get the information that they need, and to stay fully informed.”

McMorran noted that one of the biggest draws for lenders to become FSF members is the compliance support that they receive.

The Credit Contracts and Consumer Finance Act 2003 (CCCFA) will see a number of changes implemented from December 01, 2021, which will require lenders to be certified, and to comply with new regulations around suitability and affordability of loans.

Read more: Mortgage advisers to benefit from CCCFA lending changes, expert claims

The Financial Markets (Conduct of Institutions) Amendment Bill is also on the horizon, and will cover main banks, as well as non-bank deposit takers.

McMorran noted that mortgage lenders would particularly benefit from strong compliance support, and said the FSF would be looking to get more of them on board over the coming year.

“We do have some of the non-bank mortgage lenders as members, and we’d like to add more to our membership,” McMorran said.

“We think we can add a lot of value to them, particularly in the compliance and CCCFA space.”

“A few months ago, we commissioned Chapman Tripp to do a very comprehensive checklist and compliance plan for all of the changes in the CCCFA, and we’ve made that available to our members,” she explained.

“That’s been hugely helpful for them in their compliance plans, so we’ve definitely found that to be part of the reason we’ve attracted so many new members. I think the non-bank mortgage and home loan lenders would find it very useful too.”

“Overall, the main banks are being forced to take a tighter approach, and so there has definitely been more interest in the non-bank sector - and ultimately, that’s the reason that it exists,” McMorran concluded.

“The banks are not able to take certain levels of risk that non-banks might be prepared to take, and that’s why we have non-banks that are close to their customer base. This solidifies what we have already known for a long time, that the non-bank sector is seeing remarkable growth, and has established itself as a compelling alternative to traditional banks for both consumer and business lending alike.”