Third Party Banking Report 2012 - Major Lenders

Nowhere is the fight for volume fiercer than among the majors, which continue to tighten their grip on the mortgage market.

Between them, the big four banks now account for a whopping 86.7 per cent of the home loan market, according to data from the Australian Prudential Regulation Authority (APRA).

According to APRA, the Commonwealth Bank of Australia, Westpac, National Australia Bank and ANZ increased their mortgage books by $61 billion in 2011.

THE MORTGAGE market has been driven largely by a price war over the past 12 months or so, with sharp discounting across variable and fixed rate products offered by most lenders.

NAB has led the majors on price for nearly three years now and while the lender has pledged to offer the sharpest rate of the big banks for the rest of 2012, many question how much longer the bank can sustain this lead.

Pressure from funding costs has eased in recent months; however, the instability of the European and US economies has prompted considerable uncertainty in the marketplace. Turbulence in financial markets spurred ANZ to break ranks with the Reserve Bank, decoupling mortgage rates from the official cash rate in December last year, a move subsequently reflected by most lenders.

While a compelling aspect of a lender’s overall proposition, competitive pricing in isolation is unlikely to capture a significant share of loans originated through the broker channel. In this report, The Adviser asks brokers to assess the major lenders across product and pricing, support, technology and broker remuneration to identify which lenders are hitting the mark across these aspects of their offering.

With approximately 43 per cent of all new home loans written by brokers, according to the latest JP Morgan/Fujitsu Australia Mortgage Industry Report, it is little wonder the majors now place significant emphasis on the success of third party operations. There are, however, stark contrasts in the approach of each of the four biggest banks.

In 2008, Westpac, Homeside and CBA introduced segmentation to the marketplace in a bid to improve the quality of loan applications submitted via the broker channel.

CBA and Westpac established a premium tier with the establishment of their Diamond and Advantage Plus groups respectively, while Homeside created a more complex star rating system.

At the end of 2011, Homeside scrapped its star rating system, joining ANZ in deciding to deal equally with all brokers. However, CBA and Westpac have remained steadfast in their support of segmentation.

Brokers are clearly divided on the merits of segmentation and it is a topic that sparks emotional reactions across the industry. A strategy that was clearly effective at the height of the GFC is now being tested as the market shifts from one driven by a lack of liquidity to one that is short of borrowers.
The state of the current lending market and the significance of third party distribution is highlighted by the influx of lenders over the past 12 months that have announced plans for broker distribution.

ME Bank, Credit Union Australia and, in March this year, the Bank of Queensland have all identified brokers as offering the greatest opportunity to increase volumes. While these institutions in isolation pose little threat to the major’s market share, greater choice between the non-majors will mean less margin for error for even the biggest bank.

What is apparent from this year’s report is that a wide gap has opened up between the lowest ranked bank and its competitors.
Last year, the field was balanced, with Westpac and Homeside scoring 54.42 and 54.61 respectively – based on broker ratings – while CBA and ANZ scored 63.04 and 57.43 respectively.

This year, Homeside, ANZ and CBA are tightly grouped at the top of the field, separated by just 3.22 points; Westpac, however, lags behind CBA in third place by a sizable 8.81 points.

The broker sentiments revealed in this report correlate closely with recent findings of the latest JP Morgan/Fujitsu Australian Mortgage Industry Report
According to this report, Westpac Banking Corporation’s share of broker originated loans fell sharply over an 18-month period, with the lender now originating around 30 per cent via brokers compared with approximately 45 per cent at the beginning of 2011.

Westpac’s slide in market share is in contrast with the other majors which have all increased their percentage of loans written by brokers. Homeside and ANZ now write around 45 per cent of all loans through their third party channel, followed by CBA at around 37 per cent.

PRODUCT
Product remains paramount when it comes to how brokers rated the majors, with Homeside topping the Third Party Banking Report – Major Lenders ranking

What makes up a lender’s suite of products can have a huge impact on brokers and where they place their business.

Product range, price, policy and cross sell are all taken into account when a broker is deciding whether or not a loan is “not unsuitable” for a borrower.

Over the past 12 months, all of the big four have made changes to their policy, product range and, of course, their price.

In fact, price has probably received the greatest amount of attention, given that any price adjustments generally follow rate changes made by the Reserve Bank of Australia (RBA).

Last year, the RBA cut the official cash rate twice, once in November and then again in December.

Following this, each of the majors cut its own rates.

Surprisingly, however, not all of the majors passed on both rate cuts in full, with Homeside trimming its standard variable rate (SVR) by 20 basis points rather than the expected 25 basis points.

The bank’s decision is reflected in the survey. While Homeside still has the lowest SVR on the market, the major’s choosing to withhold some of the rate cut caused it to lose some of its lead over the other lenders.

PRODUCT RANGE
In terms of the quality and comprehensiveness of residential products, Homeside managed to up the ante and take out ANZ to claim first place.

The lender managed to dramatically improve its broker rating, stepping up from 3.82 out of 5 in 2011 to 4.01.  

ANZ, which has claimed the title for the past two years, wasn’t far behind, with a broker score of 4.00.

All of the majors scored well in this area, with each of the big four achieving scores above 3.00.

While Homeside improved performance strongly across the board, the lender’s specific achievements in the area of product range are impressive.
Homeside managed to improve its broker score by more than half a point, a dramatic improvement by any yardstick.

PRICING
Homeside also excelled in pricing, taking out the top spot for the second consecutive year.

This is unsurprising given that the lender has had the most competitive SVR of all the majors for over two years now.

That said, the gap between Homeside and ANZ has narrowed this year. This might be attributed to Homeside’s failure to pass on the full RBA rate cut at the end of last year.

Westpac, with the highest SVR of all the majors, came in last – over 1.6 points behind Homeside.

POLICY
Indicating Homeside is the one to beat this year, the major lender also took out top spot in the policy category – climbing up from third position last year.

The 2011 winner, CBA, slipped back down to second position, narrowly in front of ANZ.

Westpac came in last – significantly behind the other lenders – having scored a broker satisfaction rating of just 3.14.

CROSS SELL
Lenders have long recognised the benefits of using brokers to cross sell additional products.

Not only are brokers a large and powerful distribution channel, but by all accounts, demand for the broker proposition is growing – making them the perfect cross sell channel.

For the third consecutive year, CBA took out top spot, with a broker rating of 3.77.

While this mark is a slight dip from last year’s 4.00, the major lender still managed to retain first place and a healthy margin on the other majors.

CBA’s cross sell program Connect, which has been around for many years, is not only well regarded by brokers but is also unique in the third party space.

The Connect program allows the bank to support diversification. While other lenders, including Westpac, have attempted to introduce similar cross sell programs, these have failed to strike the same chord with brokers.

TECHNOLOGY
Australia’s major lenders must ensure their technology platforms remain up to date and easy to navigate

While price and product policy play a vital role in where a broker places their business, it is important not to overlook the influence technology can have.

A lender’s software can have a significant impact on a broker’s efficiency.

Online lodgements not only improve turnaround times but also help to secure business from increasingly tech-savvy brokers.

As brokers adapt to a changing world, so lenders must also update their software to ensure effective online lodgements and have a strong web presence.

Brokers want to be able to source information about specific lenders quickly and the best way is by checking their website.

WEB PRESENCE
With product, policy and, most importantly, price constantly changing, it is important for lenders to keep their website up to date.

For the second consecutive year, CBA was the winner in this area, followed closely by Homeside.

But while CBA’s web presence continues to impress brokers, the real Cinderella story here is Homeside, which scaled the ranking from last place in 2011.

The lender’s broker satisfaction rating was an impressive 3.69 – a significant rise on the 3.21 per cent achieved in 2011.

Showing that Westpac has fallen foul of brokers of late, the lender fell from second position in 2011 to last this year.

ONLINE LODGEMENTS
But web presence isn’t the only area in which Westpac has failed to impress brokers.

According to the results, Westpac also placed last in the online lodgements category, dropping from second position in 2011.

While Westpac suffers, however, Homeside is seemingly going from strength to strength, with the lender taking top spot in the category and up from last place in 2011.

CBA’s online lodgements also managed to impress the broker network, with the lender hot on the heels of Homeside, recoding a broker rating of 3.77, just 0.04 below the top score.

SUPPORT
The amount of support a lender provides can greatly influence where a broker places their business. This year, all of the lenders managed to ramp up the amount of support they provide to their broker partners

While brokers prefer to deal with banks that are tech-savvy and committed to speedy service, a lender’s BDM team and level of broker support can greatly affect where a broker places their client’s business.

Attend any lender roadshow and it is clear that the amount of support they provide is of the utmost importance to brokers.
Luckily for Australia’s majors, the report has shown that all of the big four have made a concerted effort this year to improve their level of broker support.

Homeside, however, was the standout, with the lender lifting its game to soar up the ranking from last in four of the nine categories in 2011 to first in seven categories this year.

Credit assessment staff and client support were the only two categories in which the lender failed to top the ranking, placing second and third in these categories respectively.

CBA and ANZ were left to battle it out for second and third, while Westpac trailed a long way behind the others.

From the rankings this year, it is clear to see that Westpac has really dropped the ball in the past 12 months, with broker satisfaction towards the lender plummeting.

BDMS
After placing last in this category three years ago, Homeside rebounded to take top spot in 2012.

Perhaps even more exciting is the significant improvement the lender has made in its broker satisfaction score.

In 2010, BDMs of the lender barely managed to pass muster with brokers, scoring 2.59 out of 5.

Today, the story is somewhat different: Homeside recorded a broker rating of 3.89 – the highest score on record for this category.

Last year’s winner, CBA, slipped back to third, pipped at the post by the 2010 winner, ANZ.

Westpac trailed a long way behind the other majors in this category, recording a broker rating of 2.70.

CREDIT ASSESSMENT STAFF
The story didn’t get much better for Westpac in this category, with the lender falling from third place last year to last place in 2012.

Despite this slip in the rankings, however, the news isn’t all bad, with the lender recording a better broker rating in 2012 than last year.

In fact, each of the lenders bar CBA improved its broker satisfaction rating this year, with Homeside recording the largest improvement.

While CBA was the only lender to record a drop in broker satisfaction, the major still managed to retain first position overall, suggesting the bank has always been well advanced in the area of credit assessment staff.

CLIENT SUPPORT
And it’s not just the credit assessment staff category in which CBA excelled; the lender also took out top spot in the client support category for the third consecutive year.

Homeside and ANZ, however, are not far behind CBA. ANZ improved its broker satisfaction rating by 0.18 to 3.50, slightly behind the 3.60 achieved by CBA.

Similarly, Homeside managed to improve its broker rating, climbing 0.58 from 2.75 in 2011 to 3.33 this year.

Westpac, like CBA, saw its broker satisfaction rating slip for the first time in this category but, unlike CBA, the major also saw its ranking fall – from second in 2011 to fourth in 2012.

Out of cycle rate hikes, commission cuts and extended turnaround times all appear to have taken their toll on broker sentiment towards Westpac, affecting the bank’s performance in this and other areas.

BROKER COMMUNICATION
Broker communication via updates, newsletters and other channels helps to keep the third party distribution channel abreast of any changes to lender product suites.

And as competition for market share heats up, Australia’s major lenders are making more changes and enhancements to their product suite than ever before, making ongoing broker communication vital.

Lenders that excel in the area of broker communication often find themselves receiving more business from the broker channel.

For the first time, Homeside did exceptionally well in this area.

The lender’s decision to introduce outbound broker calls has obviously paid dividends for the major, with the bank significantly improving its broker satisfaction rating.

Late last year, Homeside’s general manager, distribution, John Flavell, told The Adviser the lender had put measures in place that allowed credit support staff to call brokers when they had issues with their loan applications. Previously, this communication had occurred via email.

This move alone has helped the lender climb up the ranking to achieve a broker rating of 3.86, significantly ahead of ANZ and CBA, which achieved a broker rating of 3.7 and 3.67 respectively.

Once again, Westpac failed to deliver in this support category, falling from third place in 2011 to last place this year.

BROKER INTERACTION
The story was much the same for Westpac in the area of broker interaction.

The lender failed to impress brokers, recording a satisfaction rating of 2.96 out of five – significantly lower than the 3.25 achieved this time last year.

Worse still, the lender also managed to slip from second position in 2011 to last in this year’s ranking.

ANZ also slipped, both in place and satisfaction, with the lender dropping from first last year to second this year.

CBA came a very close third in this category, falling just 0.01 behind ANZ. While the lender placed third overall, it did manage to record the biggest improvement in broker satisfaction, lifting from 2.87 to 3.51.

TRAINING AND EDUCATION
Homeside was the standout performer in this category, significantly improving its broker rating.

In fact, Homeside was one of only two lenders to improve its broker satisfaction rating, with ANZ also lifting its game in this area.

The lenders’ commitment to training and educating their broker partners has been recognised by the third party distribution channel.

CBA and Westpac both lost ground on last year, with Westpac dropping from second place in 2011 to last place in 2012 after recording a 0.24 drop in broker satisfaction.

The lender’s training and education program is now considered by brokers to be “average”; meanwhile, Homeside and CBA are considered to provide “good” to “very good” support in this area.

BUSINESS SUPPORT
Homeside also managed to impress brokers in the area of business support, suggesting its significant inroads have not gone unnoticed.

Over the past 12 months, the lender has launched several key business support initiatives including outbound calls, online valuations and service pods.

The lender has also significantly grown its support team by bolstering both the number of BDMs and credit support staff.

The additional credit support staff are, according to the lender’s general manager, distribution, John Flavell, structured in state-based pods to allow a collaborative approach to processing loans from application through to unconditional approval.

“We are constantly asking our brokers for feedback at the events we host or via more formal surveys and we consistently hear about the importance of communication – they want us to ‘over communicate’,” Mr Flavell says.

“We now know that we need to pick up the phone and work together with our brokers – provide them with the ongoing, personal support they need.”
Because of these enhancements, Homeside has managed to improve its broker satisfaction rating by 0.35 to 3.57 out of 5, while both CBA and Westpac have lost ground.

CBA’s satisfaction rating dropped by 0.44, but the lender still managed to retain second place overall.

Meanwhile, Westpac has not only slipped in terms of satisfaction, but its overall position in the ranking has fallen as well.

TURNAROUND TIME
The speed at which an application is approved can significantly influence where a broker places their business.

Once again, Homeside was the standout performer in this field – a significant achievement given the lender’s turnaround times just a few years ago.

In 2009/2010, Homeside’s turnaround times had blown out to 20 days to unconditional. Since then, the lender has made significant changes and cut its turnaround times down to just five days.

While this is not necessarily the speediest in the market, brokers recognise the effort Homeside has made to bring down its turnaround times.

According to the survey, Homeside achieved a broker satisfaction rating of 3.63, well up on the 2.70 achieved this time last year.

ANZ also managed to improve its broker satisfaction rating by 0.29, taking its score to 3.53 in 2012.

CBA and Westpac on the other hand both lost ground and struggled to satisfy brokers in this area. CBA suffered the biggest drop in satisfaction, a disappointing result given that the lender placed first in this category in both 2011 and 2010.

Westpac’s result was also disappointing, with the lender slipping from second place in 2011 to last in 2012.

CHANNEL CONFLICT
Since all the majors originate business through the direct channel as well as through the third party channel, brokers are, understandably, concerned that preferential treatment will be given to branch customers.

The Adviser sometimes hears stories of what happens when a broker’s loan application is rejected, only for the customer to be approved when they visit the bank directly.

Westpac was the worst performer in this category, with a broker satisfaction rating of just 2.8. The lender was 0.64 behind Homeside which took out first place in the category.

Over the past year, Westpac has really struggled with channel conflict.

However, Westpac is attempting to change this, introducing a new ‘local squad’ initiative.

The local squad approach is designed to help brokers form sound relationships with their local Westpac bank branch managers.

Westpac’s regional retail general manager for Greater Western Sydney, Rob Ewins, says the bank wants to change the view that bank managers and brokers are competitors.

“Up until a few years ago, bank managers were rewarded on home loans sales. This created a relationship of distrust between broker and banker.

“Under our new local strategy, bank managers don’t get rewarded on home loan sales. What they get rewarded on is the profitability of their portfolio. We are encouraging all our bank managers to form relationships with brokers so that they can cross sell other products – not a home loan – to the broker’s client.”

COMMISSION
While commission remains a delicate subject for most brokers, it was pleasing to see all the majors improve their rating

Prior to the global financial crisis, commissions varied little from lender to lender.

Since that time, however, there are significant differences in the way lenders pay their brokers’ commission, with some refusing to pay first-year trail.

Homeside’s ramped trail program has gained a lot of support over the years as brokers are increasingly rewarded for keeping their client with the bank.

ANZ also continues to perform strongly in the commission area.

While the lender does not pay the highest commissions of the major banks, its simple structure and transparency has put it in good stead, helping ANZ to place second in both categories.

STRUCTURE
Homeside made significant inroads in this area, with the lender improving its broker satisfaction by 0.49, taking its score to 3.57. In fact, this is the second consecutive year of improvement for the lender.

Homeside wasn’t the only lender to record an improvement, although it was the only lender to record a significant improvement.

ANZ managed to improve its satisfaction rating by 0.32 but this was not enough for the lender to retain its top position, with Homeside pipping it at the post.

CBA and Westpac came in third and fourth respectively, with Westpac the only lender to record a drop in broker satisfaction.

REMUNERATION
The story wasn’t the same in the remuneration category.

All four of the majors managed to record an improvement on last year in their broker satisfaction ratings.

Homeside recorded the biggest improvement, helping it to take first place in this category. ANZ also recorded significant improvement, helping the lender to retain second place.

Once again, CBA and Westpac placed third and fourth respectively, with CBA improving its broker satisfaction rating by 0.11 and Westpac by 0.01.