After announcing NAB’s half year results, CEO Andrew Thorburn has answered questions about the bank’s mortgage lending practices.
The results showed a 16% drop in cash profits when restructuring costs were taken into consideration. Without those costs, the statutory profit was up 2%.
The results also demonstrated continued strength in the mortgage broking sector, with around 4,646 brokers under NAB-owned aggregators. Nearly 42% of drawdowns were attributed to brokers.
During a media conference following the results, Thorburn was asked whether NAB would take a tighter approach in its lending when it comes to the SME market.
Recent criticism has highlighted that a large number of brokers were simply using the Household Expenditure Measure (HEM) benchmark to work out a borrower’s living expenses. Many lenders are now working on the way they check expenses, in a way that will adequately work out a borrower’s true costs.
He said that they would not “back off because of scrutiny or noise”, insisting he believes the bank does the right thing.
He added, “We will continue to learn and get better. But, I believe, we’ve got a good approach to mortgage lending in terms of income verification and the approach we take there and expenditure, the 12 different categories we have. We always use the higher of HEM or stated expenses. So, I think we do do lending right, and I think we will continue to lend to our clients where it is appropriate to lend.”
The bank announced in February it would be changing its maximum loan-to-income ratio from eight to seven. Thornburn was asked whether this reduction would have an impact on revenues, but said he believed other factors were more involved.
He said, “If you look at our housing margins, they have reduced in the half. And, housing credit growth has slowed. I think that’s because of a number of factors, but it’s come back to four or five percent.
“I think the pressure on our housing revenue and housing growth… is mainly going to come from those factors: slower housing credit growth and continued competition for clients in the marketplace, and therefore margin compression. I think that will be the major impact, rather than this loan to income piece.
“We’re working with APRA on that, and they’re working with the industry. But, the number [of loans] that are over seven times is very small – it’s 3% of our flow. And, clearly what we’re doing with those clients is we’re going through a very rigorous process, like we would for anyone.”
