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In an update on the business on ANZ’s bluenotes blog, Maile Carnegie, group executive for Australia retail, has reflected on the shifting environment for home loans.
The Reserve Bank of Australia has commenced a tightening cycle, beginning to wind up the cash rate, while ANZ economists have tipped the rate may rise to as high as 2.35 per cent by the middle of 2023.
With rates set to climb over the coming months and lenders expected to pass on increases, many have presumed the banks will benefit from expanded margins and higher profitability.
But Ms Carnegie has warned that other trends will have more bearing on returns, with already rampant competition in mortgage lending to become more intense, while regulatory and compliance costs, and capital overlays are also on the rise.
Further, revenue yield on bank assets over the last 25 years has more than halved, Ms Carnegie wrote, with the downward trajectory expected to continue on a linear path.
“We don’t see any lessening in competition, quite the opposite,” she stated.
“And it’s also unlikely we’ll suddenly be able to cut our regulatory and compliance costs.”
In a competitive environment, home loan turnaround times are also key, the retail head noted, with a “lot of focus on speed to market”.
However, the need for speed can clash with the need to satisfy regulatory obligations.
“Quite apart from the technology aspect, what is often missed in that discussion is the controls requires to offer such products. Banks have to deal with the regulation of those controls and at the same time ensure they keep pace with the innovation consumers expect,” Ms Carnegie stated.
“At ANZ we must clear more than 1,300 obligations, requiring hundreds of controls to be operating, to get the average mortgage approved. The vast majority of those are still manual – being done with paper and people.”
ANZ’s delayed home loan turnarounds in recent years, particularly for the broker channel, have come under fire, particularly after the bank struggled to keep up with heightened demand through the COVID pandemic.
The group’s chief executive Shayne Elliott recently conceded that ANZ had let down brokers, explaining its processes required more involved checks for customers new to the bank and those who are self-employed.
As such, ANZ has invested in new staff, technology and systems in an effort to address the issue. In May, it reported a median time of three days to reach initial decision for "simple applications and a median of seven days for more complex cases.
ANZ chair Paul O'Sullivan had previously pledged to fix the systemic issues that led to the bank’s stretched turnarounds, noting they had resulted in a loss of market share.
Part of her strategy has been to rebuild the technology and framework underlying the retail bank, alongside the group’s dedicated digital and technology division, ANZx.
ANZx also developed the bank’s digital retail offering, ANZ Plus, which was recently launched to market.
“We decided to rebuild half a century of systems technology and processes rather than wallpapering over the cracks,” Ms Carnegie stated in her new blog.
“We did this because we knew tacking on automated controls to legacy systems just wasn’t going to work. It required a different solution.
“The rebuild of the underlying technology is now complete and we are starting to see the rebuild of the customer applications that sit on top, starting with ANZ Plus savings and transactions accounts.”
ANZ Plus is set to release more features and functionality, as well as home loans, which ANZ plans to have in beta testing in late 2022.
Meanwhile, Ms Carnegie reported that many of the bank’s home loan customers are in “good shape heading into this rising interest rate cycle”.
Around 70 per cent of the ANZ’s mortgage customers had paid extra amounts off their principal debt, with more than a third being about two years ahead on their repayments.
[Related: New home loans sink across board over April]