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Bank CEO calls for ‘clarity’ over expense validation

The CEO of a non-major lender has called for a “level playing field” for serviceability assessments in the mortgage market.

Following the release of Bank of Queensland’s full-year 2018 (FY18) financial results, managing director and CEO Jon Sutton called for “greater clarity” in the way that home loan serviceability is assessed among lenders.  

Mr Sutton said that other lenders have a “long way to go” before validating expenses in line with BOQ’s policy, which involves the expense validation of 100 per cent of its home loans.

“[Lenders] are certainly validating income, but there are other competitors that have a long way to go towards validating expenses,” Mr Sutton said.

Mr Sutton added: “I think that the industry would benefit greatly if there was greater clarity around the validation of expenses and the playing field was materially evened up in that regard.”

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The BOQ CEO also called into question the compliance practices of non-bank lenders, claiming that it is unclear whether such credit providers are fully complying with regulatory standards.

“There is a lot of pent-up demand heading towards non-bank lenders. They have a role to play in the financial community,” Mr Sutton continued.

“The last thing you want to see is large parts of the community unbanked. 

“[Whether] they are subject to the same scrutiny, regulation and responsible lending, even though they do hold a credit licence, is an open question.”

BOQ profits fall despite home lending spike

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Mr Sutton’s comments followed the release of the bank’s FY18 results, in which the lender reported a statutory net profit after tax of $336 million in 2018, down by 5 per cent from FY17.

However, the regional bank has noted that its home lending volumes increased from an overall reduction of $35 million in FY17 to growth of $659 million in FY18.

BOQ stated that 61 per cent of its mortgage settlements were for owner-occupied borrowers, with 39 per cent for investors, while interest-only repayments were fixed to 14 per cent of its overall settlements.

The lender also reported that home loan settlements through its broker channel increased, from 28 per cent to 30 per cent of overall settlements.

In total, the bank reported loan growth of $1.5 billion, with the bank also reporting above system growth in commercial volumes. 

The group also revealed that its net interest margin rose by 5 basis points to 1.98 per cent.

Reflecting on the results, BOQ managing director and CEO Jon Sutton said that he was pleased with the bank’s performance amid a “challenging” operating environment.   

“We have managed for the environment we are faced with, prioritising margin over growth,” Mr Sutton said.

“Our lending growth was funded by an improved mix of deposits through our branch network. Pleasingly, expenses were contained while continuing to invest in the business.”

Speaking to investors, Mr Sutton added that he expects changes in the market environment to impede future growth in the banking sector, and he made reference to slowing credit and housing market conditions and regulatory scrutiny from the financial services royal commission.

“Looking at the broader picture, there are a number of long-term trends shaping the sector,” the CEO said.

“These will create a host of challenges but also opportunities, especially for BOQ.

“The economic landscape is changing; slower housing credit growth, lower house prices, and stagnant wage growth will have an impact on revenue across the industry.”

Mr Sutton added: “Banks face ongoing public scrutiny and the likelihood of further regulatory change.

“We believe BOQ is well positioned because of its simpler business model and risk-based approach.

“Our strategy to diversify lines of business is right one; an example of this is the growth in Virgin Money Australia, BOQ Specialist, BOQ Finance and our niche commercial segment.”

[Related: Bank-aggregator reveals post-merger plans]

Bank CEO calls for ‘clarity’ over expense validation
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Charbel Kadib

Charbel Kadib is the news editor on the mortgages titles at Momentum Media.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

You can email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.

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