Australia’s banking sector and its ongoing transformation have still provided a number of opportunities for both borrowers and investors but they need to recognise how to tap them, according to Metrics Credit Partners.
This was partly possible due to the growth of non-bank lenders in the recent years which provided ready to use capital.
“While non-bank lending has developed to the point where it is directly competing with traditional bank lending, it is also complementing it, with non-banks lending alongside the major banks for the same loans,” Andrew Lockhart, managing partner of Metrics, said.
“From a borrower perspective, there can be many benefits to working with non-bank lenders. Because these lenders also need to raise capital, they need to keep loss rates low and returns consistent and will often align with borrowers to work through tough situations.
“This is in contrast to larger banks, which typically follow a set process with less room to move.”
At the same time, banks continued to retreat from private debt markets since the global financial crisis forced them to repair their balance sheets and, more recently, Basel III mandated stronger capital adequacy obligations.
As a result, Australia’s non-bank lenders were slowly following the US and UK and taking in a larger slice of the loan market, the firm said.
Additionally, the growth in the non-bank lending market was opening up opportunities for investors to garner improved returns, Lockhart said.
“From a return perspective, investing in a diversified portfolio of corporate loans enables investors to earn 3% to 5% above the Reserve Bank rate – which is much needed in a low interest rate environment.”
He also stressed that Australia’s corporate insolvency laws were probably one of the most underappreciated benefits of the local corporate loan market, providing greater security of capital for investors.
“Australian legislation governing corporate insolvency provides investors with protections, as lenders rank highest in the pecking order in terms of the capital structure of a company, above equity holders.”
“The transformation of Australia’s banking sector and its burgeoning corporate loan market will continue to present opportunities for investors seeking more certain investment opportunities in an increasingly uncertain market,” Mr Lockhart said.