Lending law change threatens to create army of people who can’t get a bank loan – KPMG report

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Financial firms expect changes to lending laws will lead banks like ANZ, Bank of New Zealand, Westpac and ASB to refuse more loans, forcing more people to seek loans elsewhere.

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Financial firms expect changes to lending laws will lead banks like ANZ, Bank of New Zealand, Westpac and ASB to refuse more loans, forcing more people to seek loans elsewhere.

According to professional services firm KPMG, changes to lending laws aimed at preventing “vulnerable” people from getting loans they cannot afford could provide more incentive to borrow from finance companies.

KPMG’s Non-Bank Financial Institutions Performance Survey shows non-bank lenders like auto finance companies and personal loan companies posted the lowest level of loan growth since the immediate aftermath of the financial crisis world ten years ago.

The non-bank lending sector recorded loan growth of less than 1% in the year to September 30, with some automotive financiers seeing sharp declines in their loan portfolios, including Mercedes-Benz Financial Services and BMW Financial Services.

But KPMG head of banking and finance, John Kensington, said non-bank lending bosses expected changes to the Lending Act on December 1 to reduce the number of people who can get loans from banks.

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That would force them to seek loans from lower-tier non-bank lenders, Kensington said.

If the prediction turns out to be correct, it could increase the number of “underbanked” people, he said.

Underbanked people refer to people who have a bank account, but have to rely on finance companies for loans.

Kensington quizzed the bosses of financial firms such as Instant Finance, Avanti Finance and UDC Finance about the legislative changes, which require lenders to be much more diligent in checking that borrowers could afford loans.

They said there would be more loan rejections.

Some put the rate of decline at 20-25%, Kensington said.

The focus would be on “safe and easy” loans.

Financial firms fear a politically-induced lending crisis could slow the economy, said John Kensington, head of banking and finance at KPMG.

PROVIDED

Financial firms fear a politically-induced lending crisis could slow the economy, said John Kensington, head of banking and finance at KPMG.

Some borrowers could find themselves locked out of even the lowest tier of legal lenders, Kensington said.

Lenders also feared frontline staff would face the wrath of frustrated people whose loan applications had been turned down.

The time it takes to approve loans would increase by 25-50%, lenders said in the survey.

“This increased time and effort has financial implications which may end up being factored into the interest rates offered as it is not possible to charge higher set-up or administrative fees,” Kensington said. .

Public awareness of the changes to the law was low and a Commerce Commission publicity campaign failed to materialise, Kensington said.

The changes to the Lending Act, which mortgage brokers say threaten to shut many people out of the housing market, come as the country was opening up.

“If lending slows just when it needs to flow fast, it will take longer to get the economy back up and running,” Kensington said.

As auto financiers grapple with the disruption to global supply chains that has led to plummeting car import volumes, some lenders have seen significant growth.

Ross Giblin / Stuff

As auto financiers grapple with the disruption to global supply chains that has led to plummeting car import volumes, some lenders have seen significant growth.

While loan growth fell for financial companies, after-tax profit across the sector rose 3.24%. Expected losses on bad debt fell, Kensington said.

As auto financiers struggled with disruptions to global supply chains that led to plummeting car import volumes, some lenders saw significant growth.

The auto lenders that saw the largest declines in their total loans as repayments exceeded new loans were: Toyota Finance (down $177 million), Mercedes-Benz Financial (down $115 million ) and BMW Financial Services (down $52 million). ).

Avanti Finance’s loans were up just over 29% at the end of September, with total loans just over $1.6 billion.

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