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Biggest threat to banks is competition, despite bad lending practices, says Hempton

Finance Markets / Mortgages


Mar 20 2018

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Australia’s banks will be more impacted by competition in the long term, than an overvalued property market, despite an increase in dodgy mortgages, according to hedge fund manager John Hempton. 

The chief investment officer of Bronte Capital, told a panel at the Australian Securities and Investments Forum said his investigations showed that some mortgage brokers routinely deceived banks to allow borrower to access ten times more than their income. 

Generally, banks would only lend up to 6.8 times a person’s income, he said. 

But Mr Hempton said he did not know how far bad lending extended or whether it was prevalent enough to have an impact on banks’ profits. 
While currently, Australian banks are the most profitable in the world and competition is minimal, over the long term, this may change, he said. 

Using a revenue-to-risk weighted asset ratio, Australian banks were sitting at 7 per cent, followed by Canadian banks at 6.5 per cent, American banks at 5.5 per cent, British banks at around 3 per cent, German banks 1.5 per cent and Japanese bank sitting at just 1 per cent. 

Mr Hempton said he didn’t expect any short term issues, but in ten years or more, competition may become a threat. 




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