Could this impact the performance of ASX 200 banks more than interest rates in 2022?
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The performance of S & P / ASX 200 Index (ASX: XJO) Banks could be affected by a particular factor in 2022.
In 2021, the credit market was subject to intense pricing competition. Some loans had an interest rate that started with a 1.
However, all major banks – Commonwealth of Australia Bank (ASX: ABC), Westpac banking company (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group Ltd (ASX: ANZ) – Have increased their interest rates for borrowers a few times over the past few months.
RateCity.com.au research director Sally Tindall noted that these increases really add up. For example, NAB’s 3-year fixed rate loan is now about a percentage point higher than it was a few months ago.
Ms Tindall said:
We expect fixed rates to continue to rise in 2022, creating a very different landscape than what we are used to. Next year there will be a lot of mortgage holders breaking out of a fixed rate starting with a “1” who will take the shock of their lives when they find out how much the prices have gone up.
However, there could be another even bigger factor in 2022 for borrowers when it comes to choosing an ASX 200 bank.
Loan processing times are a priority
One of the online-only leaders, Lendi, believes mortgage processing times will be a big factor for borrowers in 2022, according to a report by the australian.
Lendi boss David Hyman said:
Processing times have fluctuated significantly over the past two years due to increased demand, especially for refinances, in the ultra-low rate environment and COVID-related disruption.
However, many lenders have worked hard to improve their SLAs because customer experience is just as important as price for many borrowers.
Indeed, ANZ recently attributed its inability to process requests at a good pace as the main reason its market share has fallen recently. ANZ said it has taken urgent action to address these processing issues by dramatically increasing its assessment capacity as well as streamlining and automating processes.
ANZ President Paul O’Sullivan said of his handling of mortgage applications:
Let me be frank, we were wrong. Although we increased the capacity, we did not increase the capacity enough. And as a result, we lost market share to those who could process it.
We have spent a lot of time at the board and management understanding this issue. A lot of work has been done to introduce new processes, new ways of doing things and to look at best practices from the outside, so that we can learn from them and improve ourselves.
The Big Four ASX 200 banks have been working hard to improve their loan application performance.
Differences in loan processing times could result in different growth rates of the loan portfolio for ASX banks. It is not just the big four banks that want to gain market share, there are others whose Macquarie Group Ltd. (ASX: MQG), Bank of Queensland Limited (ASX: BOQ), Suncorp Group Ltd. (ASX: SOLEIL) and Bendigo and Adelaide Bank Ltd (ASX: BEN).
As the growing loan portfolio contributes to banks’ net interest income, many have warned of a deterioration in the net interest margin (NIM).
For example, CBA said its NIM was “considerably lower” in the first quarter of FY22 due to impacts such as price competition for mortgage loans, customers’ switch to fixed rate loans at low margin and the impact of a low interest rate environment.
RateCity.com.au’s research director Ms Tindall believes that variable interest rates could also cause banks to experience some volatility:
Banks are still reducing variable rates, but the cuts have largely affected their basic loans and almost always reserved for new customers.
While we expect more variable rate cuts over the next few months, we may see some lenders increase later this year ahead of the RBA, if the cost of funding continues to rise.