Addressing journalists in a media briefing on Tuesday (22 February), Mark Hand, ANZ group executive for Australian retail and commercial banking, reflected on the bank’s recent movements in home loans.
ANZ’s last financial results showed that its mortgage book fell by $3 billion over the six months to 30 September, to a total of $278 billion (although the portfolio was up by 1 per cent year-on-year).
More recent APRA data showed the bank’s owner-occupier loan book dipped by $200 million in December, to $173.5 billion, while its big four rivals had otherwise managed to climb. On the other hand, ANZ’s investor loans picked up by $100 million, to $87 billion at the end of 2021.
While headlines had zeroed in on ANZ’s home loan balance diving, Mr Hand stated media outlets had missed that the group needed to produce profit, in a market where competitive pressures had steadily risen.
Even while its home loan book was squeezed, ANZ had managed a 65 per cent surge in cash profit during financial year 2021, up to $6.1 billion.
“At the end of the day, we’re a company and we have shareholders. And so we have to watch that balance between volume and returns very closely,” Mr Hand commented.
“And I thought that market personally had gotten to a point where there was some pretty silly pricing occurring in the market, where banks would be writing deals and not making money. And quite frankly, that’s irresponsible for your shareholders.”
In the recent reporting season, multiple banks have tracked falls in their net interest margins and they have all pointed to competition in the sector, for eating away at their profitability.
Mr Hand noted there had been “such fever pitch” in the past year, that he thought banks had overstepped and been too “aggressive on pricing”.
As that began to slow volume and rates came down to ultra-low levels, the matter evolved into an “issue of refinancing”.
“So there was banks trying to steal customers from other banks and putting really good offers, particularly around the fixed rates. And we saw some incredible fixed rates, below 2 per cent at one point,” Mr Hand recounted.
“Having customers getting those sorts of rates, it makes sense that it creates a level of churn in the system and encourages customers to look around because in a time where it’s so uncertain because of COVID, we don’t know what’s going to happen to the economy.”
‘We should be growing’
ANZ has aimed for a rebound in the home loan book. Chair Paul O'Sullivan, chief executive Shayne Elliott and Mr Hand have all previously outlined efforts to slim down stretched broker turnarounds, which reportedly had reached as long as 40 days.
The bank has recruited and trained staff for its loan assessment processes, it has cut down on requirements for applicants and invested in automation.
According to Mr Hand, simple loan applications from brokers are now seeing turnarounds of three business days, while complex deals are facing a time frame of eight days.
The bank’s backlogs are down to under two days’ worth of work and no customer has been in the system for more than 14 days.
It has also simplified its product offering, recently scrapping its Breakfree package, which allowed customers to bundle their home loan with other products such as a credit card or offset account.
“I’m still in the boat where yeah, we want volume. I would like to grow and for our shareholders, I think we should be growing and becoming a bigger business,” Mr Hand said.
“There is benefit in scale. The bigger scale you have in this business, the more benefits you can provide to your customer, because the more you’ll have to invest in your systems.”
However, the executive insisted, the bank will not chase scale or volume at a cost to returns.
Meanwhile if the housing market does slow down in the coming 12-18 months, Mr Hand expects competition for new and existing customers in the mortgage market to continue.
New broker head to help with complex loans
Freshly appointed general manager of retail broker Natalie Smith commenced in her new role on Monday (21 February). She is also expected to improve ANZ’s home loan outcomes.
Like her predecessor Simone Tilley, Ms Smith has gained business banking experience under ANZ. But Mr Hand added Ms Smith is also considered a “process specialist”, after she led the transformation of the commercial bank.
The commercial experience is expected to bolster her in dealing with the ANZ’s higher proportion of complex loans.
While CBA has a higher share of PAYG loans than ANZ, Mr Hand said, his bank, similar to NAB, receives more commercial loans, which adds to the complexity.
“A lot of the changes we’re doing have been around how do we think about a commercial customer, as a home loan customer as well. Of course, those customers are incredibly valuable to banks, because they tend to have their business lending with you and their mortgages with you,” Mr Hand said.
“They are incredibly valuable customers. But they are more complex and more time consuming to do.”
[Related: Home owners are ready for rate hikes: ANZ]