We spoke to a wonderful client last week, who had run a substantial business employing hundreds of people. He had been banking with a major Australian Bank for four decades. Now they’re designed to frustrate.
He was used to dealing with a decision maker. He’s now dealing with us because he has come to the same realisation that the majority of Australians have come to. There is no one person that you deal with in a bank. The numbers are irrefutable. Last week new figures showing that 53.7% of all home loans are now written by mortgage brokers.
So why is this so and is it a good thing?
The short answer is yes and no.
It is felt by the financial services regulator, APRA, that a sales person (the person you deal with at the bank) should have no authority in granting you a loan. This is done via a separate credit assessor or system.
This was always the case with banks but some banks – in years gone by – would give their senior sales staff (with many years experience and after careful assessment of their decision making and credit capabilities) a credit authority. In short it meant that the person you dealt with was the person that approved your loan.
Most older Australians would recognise this person as the local Bank Manager. However, it was the case in Business Banking, Corporate and Institutional Banking as well. In fact, a decade ago I had authority (at institutional level) to jointly approve $500M. When I left my last role 13 months ago, I could (in theory) approve $500k – but I never did (it was just too conditional).
So, why is this a good thing?
A few reasons:
- It’s good to get a second opinion.
- It stopped any conflict of interest in the credit decision making process.
- It’s actually good banking practice.
- The theory is that it helps minimise bad loans. Although, bad lending actually increased when they centralised credit decision making.
Why is it a bad thing?
- It is not customer friendly – whereas before you could walk in to a branch and walk out with an approval, now the process can take days. If you’re self employed, weeks.
- The relationship that the customer enjoyed with their local bank has all but disappeared. Happily, this relationship is being replaced by mortgage brokers.
- The assessments of a loan are process driven. Any bespoke solution is not even contemplated. It doesn’t matter how wealthy you are or how long you’ve been banking with them.
Now, most people would be aware that some politicians are seeking a Royal Commission into banks. I’m not entirely opposed to the idea but I’d like to see one on industries that aren’t functioning first (telecommunications, the gouging in electricity and gas) before looking at the financial sector.
Sure decision making is not their strong suit and there are integrity issues with some planners, but the industry works well and ASIC’s current investigation will, I believe, tackle the problem at the heart of the industry. Vertical integration.
Bank systems aren’t intentionally designed to frustrate, that’s just an unpleasant coincidence.