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Ordinary bankers’ fears are tightening the credit squeeze
The Australian 7:52am January 23, 2019
Robert Gottliebsen
Truth is often stranger than fiction. The current severe bank credit squeeze is taking bankers close to the point where they will control your ability to eat takeaway, buy a slab of beer or a bottle of wine, or even have a baby.
Big Brother had nothing on 2019 banking, Australian style. And I fear this new style of banking has grave implications for the way banks are being managed and the effectiveness of any interest rate cuts.
Let me take you into this new world with true stories. Imagine you are a person who has never missed a bank loan repayment and you have substantial equity in your home. So you think you are a trustworthy big four bank customer and will be able to easily arrange a small increase in your home loan. Not in 2019.
When you ask for that loan limit increase, your life changes. A day or two after the application, your bank calls unsolicited and asks for an explanation as to why you appear to have increased your purchases of takeaway food via your credit or debit card. You are shocked. What business is it of the bank to monitor your eating habits? But worse is to come. A day or so later the phone rings again and once again it’s bank on the line, but a different person. The bank has noticed you have purchased items at Baby Bunting. Are you expecting a baby?
This is modern banking, Australian style.
And you are not alone. Another person reports that their big four bank called, again unsolicited, having noticed that their purchases at Coles Liquor were rising. Are you increasing your liquor intake, the banker asks? And then we discover many more people are having the same incredible experience.
I suspect the chief executives of the banks do not know this is happening. The royal commission has discredited top bank management and bank staff are fearful that if APRA comes calling, they will lose their jobs. They are taking matters into their own hands, intensifying the credit squeeze via these sorts of actions.
Instead of spending countless hours ticking mindless boxes before each board meeting, clearly some of our bank boards and chief executives need to spend much more time in the branches to see what’s really happening. Meanwhile in the wake of the squeeze, retail confidence slumps and borrowing is cut back, so real estate prices fall.
The Reserve Bank is thinking about reducing interest rates, but such action might even depress the economy further. It’s the insidious nature of the credit squeeze that is causing the problem, not interest rates. And the royal commission report and recommendations will not improve the situation.
Now let me share with you the way I came across these situations. In Adelaide, Leon Byner conducts the FIVEaa morning talk show. He invited me to appear with one of his regular contributors, psychologist Chris Hamilton, who uses his expertise to work with small businesses to help them with strategies and business plans. Many small businesses need someone to bounce ideas off. One of Hamilton’s most successful clients is a bike repair and retail business, which has been booming as part of Adelaide’s growing cycling culture.
Like so many other businesses, the capital is provided by the mortgage on the family home. But the family has never missed a repayment and has a substantial equity in their home. They saw their banker as their partner. Hamilton related their story on Byner’s program.
It seemed fairly routine for the family to ask for a $10,000 credit limit on their home mortgage, given the substantial equity and the strong business. They needed the money to buy a car. They never dreamt that their takeaway food purchases and visits to Baby Bunting would become an integral part of their banking relationship.
They were deeply shocked. For that couple, their banker is no longer their partner. Hamilton says “it’s them and us”. And their experience is not isolated.
During the morning radio program, a second couple told their story. Once again, they wanted a small loan and they had substantial equity in their home. Once again, the banker phones, but this time the bank had noticed they had been making purchases at Coles Liquor. They were asked to explain. The banks were both in the big four.
I can understand a bank looking at the total situation where payments are behind, and equity is thin. But in former times you would call the client in and discuss the issues face to face. When Byner had finished his broadcast, he received many more phone calls from people who had the same experience.
Bank chiefs talk about relationships and the need to support small business. But over the holiday break I have yarned privately with bank branch people. They were not calling clients about babies, liquor and takeaway food. But they were being overzealous in the way they looked at incredibly detailed forms filled in by clients. It is a small step to check the bank credit/debit card. And that’s what happening.
The branch people are worried about the growing number of customers struggling to pay their loans and growing number of negative equity situations. My bank branch friends were genuinely frightened that jackbooted APRA people would walk in, find fault and they would lose their jobs. And their “bosses” may also lose their job. The bank branch people feel alone.
We are looking at a credit squeeze in a form the nation has never seen before.