FISCHER Absolutely. From the start of the rate rise cycle, we were always thinking of this option. We are always looking for asset books to purchase if the price is right. Time will tell how much of this comes through.

The market is very competitive at the moment and it is still experiencing net interest margin (NIM) compression – so it is going to be an interesting six months regarding how long new entrants can maintain lower NIMs and capital returns.

GUESDE One observation I have is that in this discussion last year we talked about consolidation in almost exactly the same context – but it has not transpired. We said in that discussion that there should be consolidation, but it is now becoming even more of a hot topic.

AUSTIN I see things slightly differently. We all expected consolidation would come, but the fact that the funding markets are rallying means these businesses have a new lease of life now. It is likely that they have got through the impact of the COVID-19 era.

GUESDE I agree that this part of the cycle has passed. But it is also a question of repricing books. For small lenders, at some point in time, they have no choice but to do this. But the moment they do it, they lose their client base.

On the other hand, some other players are right in the middle. They are not small but they are also not big enough. Many have either overinvested to get the right systems but don’t have the volume, or they need massive investment to grow.

The question is whether shareholders want to put in more money or cash out. This will be a question of price – but I still think consolidation will happen. Portfolio sales will come into play – it is unavoidable. How this unravels remains uncertain. It may be through complementary mergers or something else.

I think it depends each lender’s niche. Size is important for lenders in the prime space. There have certainly been lenders with unprofitable businesses and shareholders asking how they are going to support it.

ZILELI We’re open to looking at portfolios. We were selected by David Jones to offer its card product, which also involves the potential of buying the back book. We have looked at other portfolio purchases where pricing has not adjusted.

Overall, I would say we are interested in exploring compelling opportunities. We were aggressive a few years ago: we wanted to grow and buy business portfolios. It is much more considered nowadays. We put in our price and, if it is not accepted, we walk away.

RIEDEL I agree. My view of consolidation is that two things are needed for it to work. The first is a catalyst – and, to James’s point, markets have improved and arrears are stable. Seemingly, there is no economic catalyst at the moment. To then connect to Eva’s point, in most cases the bid-offer spread is currently very significant. Taking these two things together, I suspect consolidation is highly unlikely.

The other element is shareholding structure. Most shareholdings in this sector – even in listed businesses – are highly concentrated. This raises a question of who the seller is. Share valuations are depressed, so unless there is a forced seller or a catalyst, I think it is highly unlikely that consolidation will occur.

GUESDE Let me be more specific. I think it is the smaller players that are in the front line. Some shareholders are conscious of whether now is the right time to invest in businesses such as privately held companies.

The question is whether they will be reasonable enough to accept the price. The options they may have to consider are to cash out or try to find a way to merge and identify synergies.

Everyone in the sector can benefit from these synergies. Some players, even smaller ones, are technologically advanced. Some are too small; others are right in the middle. Either way, they can be complementary with some of the other businesses in this market. I could be proved wrong a year from now but I think it is very likely to happen.

ZILELI Picking up on the point about a catalyst to sell, I think part of this is in place: a lot of these businesses are not profitable. But it goes back to the shareholders, who typically do not want to sell at a loss. There is still optimism that the market will get back to where it was and the value of the business will therefore go up 10- or 20-fold.

GUESDE We all know this growth is probably not going to be there for a while. For how long remains uncertain, therefore it would be hard for a shareholder to adjust its expectations. Some of them will need to invest A$50-100 million (US$33.3-66.6 million) and there is a question of whether they are prepared to do it. It is a really difficult decision and I do not have the answers, but I think we will see consolidation.