The veiled threats facing Australian banks

As smaller lenders break into apartment mortgaging and European banks muscle in on corporate funding, the big four could be in for a nasty shock.

Strange things are happening in the banking industry and I am not sure the big banks are fully prepared for the new environment.

As I yarn to large prosperous companies they tell me that in recent times big overseas banks, particularly those from Europe, are suddenly knocking on their doors, offering loans at lower costs than Australian banks.

The overseas banks want a presence in Australia and have plentiful access to the low cost funds in Europe and the US.

It’s a long time since we have seen active overseas banks. The big Australian companies know that overseas banks have a history of being fair weather friends, but many are taking a slice of the action.

Then in consumer land, smaller banks, looking hungrily for growth, have suddenly re-rated apartment lending with the help of valuers.

Banks have always been nervous about city apartments. They liked lending on houses but when it came to apartments bank friendly valuers tended to value apartments at lower than market prices. And then the banks required higher equity than houses. Many Australians could therefore not buy apartments, particularly in Sydney.

Indeed a year or so ago the main buyers of Sydney and Melbourne apartments were Chinese. Chinese buyers are still there spending on apartments, but they are now joined by first homebuyers and those upgrading or switching to apartments.

The valuers employed by the smaller banks are not discounting the values and the smaller banks have lowered their lending standards (or synchronised them with houses).

Rarely have all buying groups been operating at the same time.

As a result in Sydney and Melbourne there is a lot more apartment buying. Whether this pushes up prices depends on the supply. In Melbourne there are signs of a glut, which is affecting the market, but in Sydney its all systems go.

And of course as a I pointed out earlier this week, Mark Bouris’ Yellow Brick Road is accessing low-cost funding to challenge the banks with lower mortgage rates (Mark Bouris' extreme CEO makeover, November 13).

Unfortunately, as I explained yesterday, large segments of the building industry are in a mess and banks are being very wary so liquidity is tight.

With all buying groups operating at the same time, let’s hope we don’t have some banks fostering demand and others restricting supply (Australia's dangerous apartment rot, November 15).

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