• RBA cuts cash rate, but high rates still stick around
  • Non-bank lenders rise as banks tighten up
  • Secured loans, tech, and margins keep lenders afloat

 

The Reserve Bank of Australia has finally made its long-awaited move, dropping the cash rate by 0.25% on February 18.

After months of speculation, the cut is a big relief for Aussie households, and exactly what a lot of us were hoping for.

The RBA had been slamming us with rate hikes for years, trying to get inflation under control.

While those have definitely worked to cool the economy, there were signs they were pushing things a little too far with cost-of-living going through the roof.

The RBA’s decision brings some comfort, but there’s still a lot of uncertainty in the air, especially for those trying to access loans.

That’s because big banks have been tightening their lending policies.

They’re being picky and want higher credit scores, more paperwork, and substantial security, which means many borrowers are now being told “no thanks” or given the cold shoulder.

And this is where non-bank lenders come into play.

They go after borrowers who don’t meet traditional bank requirements, whether it’s low documentation or a weaker credit score.

They are also increasingly targeting motor finance, an area where traditional banks have pulled back.

These lenders are smaller, but growing fast, and now account for about 5% of the country’s financial system assets.

According to recent stats, non-bank lenders are growing faster than banks. In the last five years, business lending through these providers jumped 45%, while traditional banks saw only a 25% increase.

Non-bank lenders also approve loans faster, and with their advanced tech, borrowers often say the whole process is much smoother.

 

Margin is key

But these new breed of lenders are not immune to pressures in the market.

Although a rate cut would help reduce funding costs, with interest rates still high and inflation lingering, many have had to adapt quickly.

To stay afloat, some have adjusted their pricing and credit risk strategies, focused on high-quality borrowers, and expanded their lending against secured assets.

Switching to variable rates has also been a key strategy for non-bank lenders, allowing them to better manage margins amid fluctuating market conditions.

Margins are the most crucial metric for lenders because they determine how much profit is made on each loan.

Just how important they are was clear last week, when Bendigo and Adelaide Bank’s (ASX:BEN) share price crashed nearly 20% after the bank reported a significant drop in its margins.

The margin squeeze at Bendigo happened because the bank had to rely on more expensive funding from capital markets instead of cheaper customer deposits.

A few days later, National Australia Bank’s (ASX:NAB) shares also sold off by around 7% after the bank reported a “small” but undefined contraction in its net interest margin (NIM).

 

How non-bank lenders manage to maintain margins

Non-bank lenders have managed to maintain their margins by shifting to variable rates, allowing them to adjust pricing and stay competitive.

ASX-listed non-bank lender MoneyMe (ASX:MME), for instance, has around 70% of its loan book at variable rates in FY24.

And it seems to be working.

The company has managed to maintain a healthy NIM; it’s sitting at 8% for 2Q25, just a tiny dip from previous quarters despite the rocky market conditions.

MoneyMe probably has one of the highest NIMs in the industry.

For comparison, its competitor Wisr’s (ASX:WZR)‘s NIM is around 5.75%, while the big banks usually have a NIM of under 2%. For instance, Commonwealth Bank ‘s (ASX:CBA) was at 1.99% in its latest update.

“Revenue remained stable and our net interest margin was 8%, reflecting our strategic shift toward secured assets and a higher credit quality loan book,” said MME’s CEO, Clayton Howes.

“These ongoing shifts in our loan book composition and credit profile are delivering tangible benefits, reducing credit losses and supporting more favourable funding terms.”

 

Secured lending means lower credit losses

To cope with market pressures, some lenders have also made a conscious shift towards secured lending.

By backing loans with assets like property or equipment, lenders have something to fall back on if a borrower falls short. It’s making sure you’re not left high and dry if things go south.

For instance, around 62% of MoneyMe’s new loans in the last quarter were secured, compared to just 48% the year before.

This move has lowered the company’s net credit losses to 3.7%, and its average credit score is up to 778 in Q2, a 4.9% increase from last year.

Rival Harmoney Corp (ASX:HMY) also reported credit losses of 3.7% in its most recent half, putting it on par with MoneyMe’s performance.

 

Diverse sources of funding are crucial

Meanwhile, non-bank lenders can’t take deposits like banks, so they raise money in a few different ways.

One popular way is through warehouse funding. This involves securing a line of credit from banks or other financial institutions.

Another common method is by issuing bonds or other debt securities to institutional investors.

Non-bank lenders can also raise funds through securitisation, where they bundle up the loans they’ve issued into a pool and sell it as a security to investors.

But with these markets becoming more volatile and interest rates remaining high, it’s getting harder, and more expensive, to secure the funds they need.

Harmoney, for instance, has an especially diverse funding setup, with warehouse lines coming from three of the “Big 4” banks in both Australia and New Zealand.

On top of that, the company got into asset-backed securitisation with its first deal in 2021, and in August 2023, it followed up with a $200m securitisation in New Zealand, both of which were publicly rated by Moody’s.

MoneyMe, on the other hand, managed to renew and expand its funding program on more favourable terms.

In December, the company secured a $125 million corporate debt facility with iPartners, refinancing its previous corporate facility at a lower cost of funds and more favourable covenant settings.

Additionally, in October last year, MoneyMe completed a $517.5 million Autopay asset-backed securities (ABS) deal, which further reduced its cost of funds.

“These initiatives will enable capital-efficient growth and funding cost reductions that will flow through in 2H25, supporting our overall margins,” said Howe.

“Additionally, anticipated RBA cash rate cuts in 2025 would further lower our cost of funds.”

 

 

At Stockhead we tell it like it is. While MoneyMe is a Stockhead advertiser, it did not sponsor this article.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision.

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