‘Disappointing outcome’: ANZ chair explains lagging home loans

During its annual general meeting on Thursday (16 December), Mr O’Sullivan admitted the bank had lagged in its loan processing, resulting in market share slipping away to its rivals.

In the second half of 2021 financial year, the group’s book for home loans fell by $3 billion from the first half, down to $278 billion (although the total was up by 1 per cent year on year).

ANZ chief executive Shayne Elliott noted revenue from the segment had grown by around 10 per cent, but the number of home loans had fallen as customers paid down loans faster and the speed at which the bank processed applications “just wasn’t sufficient”.

While the bank has reported making moves to rectify its turnarounds, ANZ continued to see declines in its home loan book in October, with its mortgage total dipping to $260.35 billion from $261 billion in August, according to APRA data.

The home loan issue had been a key factor impacting ANZ’s overall assessment of the CEO’s performance for the 2021 year, with Mr Elliott receiving 53 per cent of the maximum potential annual bonus. He had also received no rise to his base salary.

Mr O’Sullivan repeated similar reasons previously given by Mr Elliott and Mark Hand, group executive for Australia retail and commercial. Namely, the bank had been hit by a tsunami of demand and its systems were not built to withstand it.

The bank’s process requiring manual assessments of broker-lodged loans had been overwhelmed through a flurry of loan applications through COVID.

“This year major increases in demand for home loans in Australia impacted our ability to process applications in a timely manner. Unfortunately, this resulted in a loss of market share which was a disappointing outcome,” Mr O’Sullivan told shareholders on Thursday.

“Naturally this has been a major focus for the board and management and we are confident the systematic actions being taken by management will address these issues, including increased investment in automation and process improvement.”

Further moves the bank made to slim its turnarounds included seeking third-party advice and the redesign of its systems to handle more capacity and to facilitate quicker decision making.

It had also redeployed and trained more staff to conduct its manual assessments. Mr O’Sullivan nodded to the importance of “being able to serve… third-party channels”.

But the chair did note the bank tends to “get a lot more of the more complex loan decisions”, in contrast to other banks that face more simple applications, that can be processed at a faster pace by digital systems.

“I think you’ll find that those digital platforms are not very efficient or effective in processing those [complex loans]. On a day to day at ANZ, we tend to get a lot more of the complex loan decisions,” Mr O’Sullivan said.

“However, that's not an excuse for our performance.”

With the system revamps, ANZ expects its home loan portfolio to grow in the first half of the 2022 financial year and to be in line with system growth during the second half.

“We recognise we have more to do, particularly in the home loan processing space, but we have made good progress in building a bank to better compete in a highly competitive, fragmented market,” Mr O’Sullivan said.

Mr Elliott echoed the chair during the AGM, stating: “We are laser focused on what is important for shareholders: We will continue to regain momentum in Australian home loans.”

The group is also set to launch a digital loan proposition towards the end of next year, off the back of its new online banking offering, ANZ Plus – which is due to release in early 2022.

The digital product will fall under the “second aspect” to fixing ANZ’s greater home loan downfall, Mr O’Sullivan said, which is investing in new technology and platforms.

“Effectively, we're putting a new front end capability into the bank to allow us to deal with customers digitally and to be able to do flow through processing with a minimal amount of human intervention,” he said.

“That's a major project for the bank.”

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