Why ASX non-bank lenders could be shaping the future of finance in Australia. Picture: Getty Images
Why ASX non-bank lenders could be shaping the future of finance in Australia
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- Non-bank lenders are gaining prominence in Australia’s credit market
- These lenders are filling gaps left by traditional banks
- We look at the non-bank lending stocks on the ASX
They’re much smaller in size compared to banks, but non-bank lenders have become essential players in Australia’s credit market.
According to the Reserve Bank, non-bank lenders now account for around 5% of financial system assets in Australia.
As per the RBA’s definition, non-bank lenders are essentially firms that offer crucial financial services but are not banks.
They play an important role in the Australian financial system but are less tightly regulated because they do not accept deposits.
The rise and rise of non-bank lenders
Non-bank lenders are growing in Australia for several reasons.
One key factor is their ability to offer more flexible lending terms compared to traditional banks. This flexibility can attract borrowers who may not meet stringent bank criteria or who require specialised financial products.
Additionally, non-bank lenders often have quicker approval times, making them appealing for borrowers seeking faster access to funds.
Another factor driving their growth is innovation in financial technology (fintech), which allows non-bank lenders to leverage digital platforms for efficient operations and customer engagement. This technological edge can enhance customer experience and broaden their reach in the market.
Also, regulatory changes and competition have encouraged diversity in the lending landscape, prompting non-bank lenders to fill gaps in the market left by traditional banks.
“Most lending is for housing, but over recent years non-banks have increasingly moved into financing vehicles,” said a note from the RBA.
“Some also lend to self-managed super funds (SMSF) and residential and commercial construction as banks exit these sectors…”
Tailwind ahead
Unlike traditional banks, non-bank lenders do not use customer deposits to fund their loans. Instead, they depend largely on the capital markets.
This means they primarily raise funds by arranging warehouse funding or issuing debt securities. Interestingly these are often bought by major banks themselves.
These sources of funding are crucial but come with higher costs, making profitability a careful balancing act for lenders.
“The interest rates on loans offered by non-banks are typically higher than those offered by banks, which is consistent with non-banks lending to riskier borrowers on average,” said the RBA.
However, experts believe the silver lining will emerge when interest rates eventually decline.
Non-bank lenders stand to benefit the most from this shift, as it will finally ease the financial burden and boost their competitiveness against larger banking counterparts.
The recent pause in rate hikes by the RBA has already alleviated credit risks and reduced funding pressures for these lenders.
Looking forward however, there are still ongoing uncertainties, particularly around tight capital markets and the persistent challenge of accessing funding.
In navigating these dynamics, non-bank lenders have emphasised the critical role of robust credit risk management.
Companies that prioritise high-quality loan portfolios will be better positioned to weather market volatility and sustain growth.
Non-bank lenders on the ASX
Non-bank lenders operate outside the conventional banking system and can be broadly categorised into two main groups: those that lend to consumers and those that lend to businesses.
Consumer-focused non-bank lenders specialise in providing loans directly to individuals. These loans typically include personal loans, home loans, auto loans and student loans.
In contrast, business-focused non-bank lenders usually cater to the financing needs of small to medium sized companies (called SMEs). They offer a wide range of business loans, such as working capital loans, equipment financing, commercial real estate loans, and cash advances.
MONEYME provides a range of digital financial services, primarily focused on personal lending.
One of MONEYME’s key features is its fast approval and disbursement process. Applicants can receive approval within minutes after completing an online application.
In its latest Q3 update, MONEYME highlighted steady performance and focus on credit quality.
Gross revenue for the quarter was $53 million, slightly up from the previous quarter but lower compared to the same period last year, reflecting a focus on higher-quality assets.
The loan book balance remained stable at $1.15 billion, with an increased proportion of secured assets.
Net interest margin held steady at 10%, maintaining performance from the previous quarter.
Net credit losses for the quarter were 4.8% which significantly improved from the same period last year, reflecting overall stronger credit quality.
MONEYME has also enhanced its operational capabilities by expanding warehouse facilities and advancing its technology platform, Horizon, alongside its AI application, AIDEN.
Wisr focuses on writing personal loans and secured vehicle loans to Australian consumers.
The company navigated Q3 of FY24 with a deliberate focus on maintaining moderated loan volumes, a strategic approach that it says will set the stage for upcoming growth initiatives in Q4FY24 and beyond.
Despite a slight dip in quarterly revenue to $23.1 million, Wisr demonstrated improved Net Interest Margin and achieved a quarterly net operating cash flow of $4.5 million.
The company’s prudent approach to loan origination resulted in $52 million in new loans and a well-managed loan book of $808 million, maintaining a strong average credit score of 781.
Wisr’s commitment to credit quality is reflected in a moderate 90+ day arrears rate of 1.71%.
Its recent partnership with Nomura highlights Wisr’s ability to garner support from institutional investors for its future growth plans.
In May, Wisr secured a significant $50m debt facility from Nomura.
The expanded facility will support the company’s plans to increase loan volumes starting in Q4 FY24. Initially drawing $35m, with $25m allocated to repay existing corporate debt, Wisr will have an additional $15m to fuel its ongoing growth initiatives.
Non-bank lender Propell is targeting Australia’s 2.4 million SMEs, who the company says are frustrated with traditional banks’ slow and difficult lending processes and paperwork.
The company has achieved significant growth milestones recently. April marked a record-breaking month with a 350% increase in loan volumes compared to the previous year, demonstrating robust performance that continued into May.
The average loan size has surged to $82,000 quarter-to-date, more than doubling year-on-year.
Under the leadership of Managing Director Michael Davidson, key achievements include expanding the broker network, enhancing market reach.
The company has also focused on increasing deal volumes while maintaining high customer and credit quality, resulting in record originations and substantial growth in the loan book.
Propell says efforts to manage its cost base are expected to translate into strong financial results for the quarter.
Butn is a non-bank lender focusing on small business loans.
The company reported strong performance in the first half of 2024, highlighted by record originations and revenue.
Originations reached $241 million, up 12% from the previous year.
Revenue for the period was $6.8 million, marking a 24% rise year-on-year, accompanied by a positive EBITDA of $1.4 million.
The platform also grew through partnerships like MYOB.
Butn is now in the middle of a $5 million cap raise to support future growth and general working capital needs.
The fundraising involves a fully underwritten 1-for-1.9 pro rata accelerated entitlement offer at $0.052 per new share.
Harmoney lends to consumers both in Australia and New Zealand.
The company reported strong performance for the nine months ending March, despite challenging market conditions.
Its loan book company grew by 4%, with the Australian segment reaching $400 million, accounting for 53% of the total group book.
Revenue increased by 18% year-on-year to $91 million, supported by improved credit loss percentages and a reduced cost-to-income ratio of 23%.
Plenti also focuses on personal loans to consumers.
The company reported strong financial results for the fiscal year ending March 31.
Highlights include a loan portfolio growth to $2.1 billion, a 21% increase from the previous year, with $1.2 billion in loan originations, up 6%.
Revenue surged by 47% to $211 million, supported by robust credit performance with a net loss rate of 1.06%.
Cash NPAT increased by 36% to $6.1 million.
The company also enhanced its proprietary technology platform and integrated with NAB systems to support a new ‘NAB powered by Plenti’ car loan.
Additionally, NAB entered into an equity investment agreement potentially acquiring up to 15% of Plenti’s shares based on milestones.
Plenti continued to diversify its funding sources through ABS transactions and expanded its retail investor platform via the ‘Notes Market’.
At Stockhead we tell it like it is. While MoneyMe and Wisr are Stockhead advertisers, they did not sponsor this article.
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