Bendigo Adelaide Chief Warns On Risky Bank Lending

Bendigo Adelaide CEO Mike Hirst says that the fierce competition by banks for growth in a low credit demand environement is driving a “race to the bottom”.

Hirst told the AFR:

When growth is low, there is always a lot of people who will resort to pricing into credit to put that forward as their point of difference. We are seeing a bit of that emerging at the moment. In our view it’s a race to the bottom.

It is not hard to see why banks are competing fiercely, with data released by the RBA yesterday showing that demand for housing credit is still in the doldrums with a rise of just 0.5% in March to a 5.9% annual rate. That’s off the recent lows but a long way away from the heady days a decade ago when demand was running at more than 20% annually.

Indeed, 5.9% is still amongst the slowest growth rates in the history of this data series, which runs back to 1976.

Hirst noted to drive incremental growth high LVR (loan to value), lending had made a comeback and that Bendigo Adelaide was also “probably” doing “a bit of that just as everybody else does.” But that in terms of the total lending book, it was important to keep this more risky lending (because of the high LVR) at a “reasonable level” in the context of the overall book.

It seems everyone is doing it – even those shining a light on the practices.

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