Sydney, 30 April, 2007: The Australian Bankers’ Association (ABA) said more evidence has emerged that banks’ lending standards are sound when compared to other lenders such as non-conforming lenders.

Media coverage today noting that banks are responsible for all repossessions in Sydney’s west and that banks are lending irresponsibly is incorrect and is not based on facts.

Non-conforming lenders¹ and other lenders make up the vast majority of repossession activity, not banks. The quality of bank lending is high when compared with other lenders because banks have a much lower rate of delinquent loans. The vast majority of creditors in bankruptcy cases are not banks but other lenders.

The recent data follows:

• Moody’s data shows that delinquency rates for non-bank lenders is 2.15% for loans thirty days past due. The corresponding rate for banks is around a third that, at less than 1% (0.78%). 
• In NSW and ACT, the overwhelming majority of repossession action involves customers of non-conforming lenders and other non-bank lenders such as family members, businesses and finance companies etc. 
• Bankruptcy statistics from the Insolvency and Trustee Service of Australia (ITSA)² indicate that 70% of creditors for bankruptcy cases are not bank-related and include trade creditors, store accounts, professional fees, utilities, medical bills and family loans.
• The ITSA data also shows that almost 80% of the dollar value of the debt of people who have declared bankruptcy is not related to banks. The debt is owed to creditors such as finance companies, the Australian Tax Office, tradespersons, store accounts, professional fees, utilities, medical bills and family loans.

David Bell, Chief Executive of the Australian Bankers’ Association (ABA), said: “This data is growing evidence that banks’ lending standards are much higher than the non-conforming lenders and other non-bank lenders. It makes sense as non-conforming lenders, in particular, typically take on customers who pose a higher risk.”

Banks are also subject to prudential supervision by the Australian Prudential Regulation Authority. Banks also have their own Code of Banking Practice, which requires banks to try to help customers in financial difficulty with their loans, if the customer agrees.

David Bell, Chief Executive of the ABA, said: “There is a large and growing segment of non-conforming lenders in the mortgage marketplace.  They are not prudentially supervised and often need to act more quickly on a mortgage default than a bank.”
 
“Banks work with their customers to look for solutions to problems with their loans, especially as the problems can be the result of a short-term problem and banks want to keep long-term relationships with their customers.”

If a customer cannot make payments on their loan, the ABA urges them to speak to their bank as soon as possible. Generally, the bank will try to work out a solution, for example, a different repayment schedule to accommodate temporary difficulties.

Background for editors:

• The NSW Supreme Court data on applications for repossession is complex. Repossession applications include a very diverse range of property including family homes, investment properties, vacant land, properties owned commercially or other land.  The data do not separate these categories. To assume that all applications for repossession relate to family homes is incorrect.  In fact, the ABA understands there has been an increase in the number of investment properties which have been involved in repossession activity over recent years.
• The data published in today’s Daily Telegraph, is inaccurate. The number of writs of possession quoted by the newspaper (5,363) is incorrect. The number of writs is only a fraction of this number and there are no data available to suggest whether this has increased or decreased on the previous year.
• Without a time series data for each suburb, it is difficult to know if the situation in the suburb regarding repossession activity is stable, becoming worse or improving.

For further information:

Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439

ENDS