News SummaryDJ Australian Non-Bank Lenders Eye 'Underserved Markets' -- InterviewPPM$2.22-$0.02 (-0.9%)$2.20$2.23
22 Apr 2022 11:47:101 ViewBy Alice Uribe
SYDNEY-- Australian non-bank lenders are positioning themselves to plug gaps in areas that have been vacated by major banks as they move to simplify their businesses, Pepper Money Ltd. Chief Executive Maro Rehayem said.
Mr. Rehayem said that non-bank lenders have been looking at opportunities in the asset-financing sector such as car loans that they can capitalize on. "What we deem, then, as the underserved segments of the market have really just been growing year-on-year," he told The Wall Street Journal. "Whether it's in mortgages, whether it's in the asset-financing industry, the banks have created more and more opportunities for the likes of Pepper to be able to capitalize on that."
"Sometimes when a bank sees a particular area that is too small for them to play, it is actually quite a substantial size for a business like Pepper and other non-banks, " the CEO added.
Over the past years, some of Australia's largest financial institutions have been simplifying their businesses and offloading non-core assets, maintaining a key focus on mortgages.
Australia & New Zealand Banking Group Ltd. in September 2020 completed the sale of its New Zealand-based asset-financing business, UDC Finance, to Shinsei Bank Ltd., which it said was in line with a simplification strategy. Westpac Banking Corp. in August 2021 finalized the sale of its own asset-financing subsidiary, Vendor Finance.
Mr. Rehayem said the level of credit assessment required for certain products can require a more "specialist view," which may not suit banks that are looking to streamline and reduce approval times for different loans.
In the first quarter of 2022, Pepper's mortgage originations sat at 1.9 billion Australian dollars (US$1.40 billion), up 54% from a year earlier. Its asset-finance business, meanwhile, delivered first-quarter originations of A$0.7 billion, up 78% on last year.
Loans for electric vehicles is an area where Pepper has had success. It provided loans for 11% of all EVs sold in Australia last year, making it the biggest lender in the country for EVs, said Mr. Rehayem.
"We looked at the EV market and we found no one was actually understanding it. Wherever there is no focus, we try and peel back and understand why there is no focus and try to create something out of it," he said.
As part of a wider strategy to widen its distribution footprint, Pepper this month announced plans to acquire 65% of Australian online direct-to-consumer asset finance broking platform Stratton Finance.
"Stratton does generate in excess of 19,000 leads per month. It gives us an opportunity to start introducing more products into Stratton outside of just car loans," he said.
On interest rates, Mr. Rehayem said the Reserve Bank of Australia could potentially raises its rate as early as May, but that Pepper's customers look able to manage this.
"When rates do rise, we are in a strong position. Our mortgage customers have an average of 290+ basis points serviceability buffer," he said.
"When coupled with household savings, which continue at rates significantly higher than the historic average, and unemployment at only 4%, customers are in a good position to continue to manage their financials," the CEO said.
Write to Alice Uribe at alice.uribe@wsj.com
(END) Dow Jones Newswires
