International evils dumped on ordinary Aussies
Today, I’m going to tell you a story.
It’s a tale of greed and opportunities.
A trillion-dollar chance at riches.
Bankers and debt.
The people versus the banks.
And the biggest credit boom to ever hit Australia…
Lenders need to keep lending
I hear you chortle.
‘Credit boom coming to Australia? Can’t be possible’, you say.
Banks are tightening lending. Suddenly, the big four are lending 20-25% less for mortgages.
They’re scrutinising the tiniest detail. Sneering at people for too many Uber Eats orders. Questioning if people really need a gym membership. Asking all sorts of questions they never asked before.
They’re assessing people’s real cost of living through bank statements, rather than an automated cost-of-living estimate.
The big four, in particular, are being, well, particular about who they lend to now.
But you can be darn sure they’re only doing it because of all the naughty banking deeds that were brought up during the banking royal commission.
Major banks may have reduced the amount they are willing to lend. But that’s only because they got caught.
Remember, bank profits rely on lending to stay in business. There is no company growth if the banks reduce the amount they lend.
So, it’s only a matter of time before banks get back to their bad banking ways.
They’ll just wait for the regulators to look the other away again. Then they’ll fire up those lending machines once more.
But the big four don’t want to take too long.
Because there’s a bunch of new lending machines eyeing off the Australian market…
…and they could capitalise on the big banks’ reluctance to write new loans…
…and our desperate need to sell houses to each other.
Three critical steps
So, how exactly does Australia’s biggest ever ‘credit boom’ play out?
The first step is the Reserve Bank of Australia cutting rates. Yes, I’m confident it’s ‘will’, not ‘might’. A lower cash rate is only going to encourage people to take on more debt.
Next up, there’s the fact that both ANZ and Westpac have now doubled the interest-only term for property investors.
If you approach either of these banks, you can apply for a 10-year interest-only investor loan.
This suddenly became available only a month after the Australian Prudential Regulation Authority (APRA) dropped the cap on investor-only loans for banks. (See what I mean about waiting for the regulatory bodies to look the other way?)
But the third and final clue that there’s a credit boom coming…is all these international banks sniffing around our $1.6 trillion mortgage business.
The battle to ‘out-lend’ each other
One person’s risk is another person’s opportunity.
Our banking sector is no different.
Aussie banks are making it harder for owner occupiers to get a loan.
This leaves international banks curious about the potential in the Australian market.
The moves are small, but they give clues of what’s to come.
London-based Standard Chartered is assessing what sort of possibilities exist in Australia.
According to the company’s chief executive, the banking royal commission was a ‘disruption’ that could enable Standard Chartered to develop a base in the Aussie market.
It’s a similar story with HSBC.
The Asia-based bank began working directly with stockbrokers 18 months ago to capture a potential batch of new clients.
These two companies have well-developed businesses in Asia. Expanding further into the Southern Hemisphere is a natural progression of that growth.
In saying that, no matter how small the entrance is into the Aussie market, it’s an ominous sign for the major banks.
Take Standard Chartered for example.
This company has $965 billion (US$633 billion) of assets under management. Meaning, this medium-sized bank (by global standards) beats ANZ’s $889 billion worth of assets.
Our major banks are up against bigger banks…with even bigger pockets.
Essentially, this expansion of international banks Down Under will increase the competition for Aussie banks — especially the big four. Of course, the big four could do with less of a stronghold on the Aussie mortgage market.
The caveat to that competition, though, is that it means new entrants are fighting for market share with bigger loans…and probably are more inclined to take on greater risk.
The biggest credit boom in history
What’s the problem with a credit boom, you say?
Won’t we all get wealthy as it unravels, you ask?
There’s every chance timed entrances into certain markets with debt will work out well for some investors.
Just ask those people who bought a house in 2001. They benefited from the first housing credit boom.
And of course, all those investors who took out interest-only loans in 2008 are probably sitting on a decent paper profit.
Yet new international bank entrants with deep pockets, throwing around loans to the riskiest punter, have the potential to destabilise the Aussie economy even further.
This could create a new bunch of risks that Aussies don’t even see coming…
It could lob international problems on everyday people…
Sure, bankers know how to mitigate international risk, but do you?
Stick with me tomorrow, and I’ll show you how this interconnectivity works…and the accidental risk it brings right to your doorstep.
Then on Saturday, I’ll release the first of three videos explaining what’s coming.
Come Tuesday, I’ll share the blueprint you need to navigate this risk like a banker with billions at stake…