FISCHER As you said, asset performance has returned to pre-COVID-19 levels,
unemployment is still quite low and housing prices are holding if not increasing. From our perspective, although arrears in some customer tiers have increased, they are returning to longer-term averages.

We haven’t seen anything concerning. We have experienced an increase in insolvencies – ASIC [the Australian Securities and Investments Commission] pointed out that insolvencies were up 36 per cent for the financial year to 30 June 2024, which is consistent with the wider market.

BELL Zip Co management took a view 12-15 months ago to adjust portfolio risk settings for a higher-for-longer interest rate environment. As part of this strategy, we implemented specific actions to lower approval rates and manage credit availability. In aggregate, these actions resulted in better outcomes and higher excess spread for the portfolio.

We took a view that we didn’t need to grow receivables at the expense of higher losses. Our strategy execution has been a large driver of our credit performance being better than we would have otherwise have expected.

BROWN We have maintained our existing policy and credit discipline throughout the cycle, targeting high-quality borrowers with equity and experience. When inflation was increasing, we were aware that we needed to be more cautious. We examined pockets of our book to ensure we were comfortable with what we were writing during this time.

The resilience of our portfolios has been stronger than we had expected, which is a reflection of the high-quality borrowers we target. We have come from very low arrears but levels have normalised and in fact now turned. We think this is largely where it will stay.

Being able to keep writing the volumes we have to complex prime borrowers through all market cycles is testament to the policy we have had in place for a number of years and our funding diversity. Regardless of which way rates go, I believe our borrowers will continue to perform.

TOGNON As we were going through our 2024 budget process in late 2023, we made two key assumptions: that there would not be a rate cut in Australia in 2024, and that arrears would return to pre-pandemic levels before the end of the year. It seems both predictions are working out as expected.

Similarly to Gordon, we have taken proactive management actions over the last 18 months to manage our margin and ensure we had sufficient excess spread to offset normalising credit performance.
As we are experiencing solid credit demand and growing receivables across our book, over time we expect normalisation in credit performance, too – the former leads to the latter over the medium term.

MARSDEN One thing we have learned from our residential book is that the increase in delinquencies really occurred when the consecutive interest rate rises were passed on to borrowers. For a long time, our view was that unemployment was the main determinant of delinquencies in the residential book – but unemployment has actually improved.

The consumer component of the asset finance book is tracking fine. We have some
concerns for the transportation and construction exposures in our SME portfolio, though.

J AUSTIN Arrears have not changed at all in our residential book. This is a product of the period of heavy bank competition, refinancing and huge CPRs [conditional prepayment rates]. Any borrowers that have been caught out by the increasing rates had likely refinanced out of our book. I have to wonder, though, what arrears would be like if house prices weren’t continuing to go up.

When it comes to autos, a successful business is primarily about controlling fraud. This is because arrears and genuine delinquency are benign. The big numbers come when we lose the whole value of the loan, which means the key point is fraud mitigation controls. How this is managed dictates the success of the business.

RIEDEL From a performance perspective, we witnessed a higher correlation in December, January and February – the period in which consumer discretionary spending is highest.

Each December, we experience an uptick in payment assistance requests. This normalises through the year. However, a very small group of customers has not been able to catch up missed payments because of higher-for-longer interest rates and higher cost of living.

We are helping these customers over a longer period of hardship. They have not lost their jobs and they are still paying more than 80 per cent of their contractual obligations – it is just that they have been unable to catch up with the higher cost of living and interest rate environment.

AZZOPARDI Our portfolio is about 30 per cent nonresident, in which 30-plus days arrears are remarkably low, at about 50 basis points. As soon as someone misses a payment in this segment, the majority seem to rectify it quickly. This is testament to the Australian property market – investors put a high value on the asset appreciation they get.

We have had an uptick in hardships in the resident book though our sense is that seasonality is more relevant than interest rate increases. This said, the November 2023 interest rate rise could also be relevant. We had quite a few customers go into hardship early this calendar year but we’re on track for about 95 per cent of them to make good from July to September. Our arrears are low and holding up really well.

TOGNON I think it is interesting that elevated prepayments are still a factor for us – especially on cards, which is a revolving rather than amortising credit product. CPRs have materially come down from the highs of 2021 but they’re still elevated compared with the situation prior to COVID-19 and the slowdown has been slower than we originally expected.

Sometimes the Australian consumer is portrayed as being in a lot of pain, but there has been a lot of discipline across the consumer sector.

The fact that prepayments are still elevated indicates that the excess savings accumulated during COVID-19 are still in the economy.

Perhaps they are not being spent freely, unlike in other markets where excess savings were quicker to burn. But the money is safely stashed away in mortgage offset or savings accounts. This is another reason why the overall Australian credit market is performing better than other geographies.

AZZOPARDI Our offset balances have increased month on month, every month this year – though, to be fair, only marginally. Normally they bounce around a bit, but we have seen steady increases.