Inspired by Hayne inquiry, NAB, BT throw down gauntlet to competitors

National Australia Bank’s support package for farmers and BT Financial Group’s move to slash fees on its Panorama investment platform are the latest examples of the positive financial impact of the Hayne inquiry.

NAB chief executive Andrew Thorburn announced a package of measures for rural clients during a speech on Monday to a group of community leaders at a NAB event in the NSW regional town of Wagga Wagga.

One of the measures is scrapping higher default interest on loans to drought-affected farmers. NAB’s custom of penalising farmers with default interest rates even though drought had hindered their capacity to service loans came under intense scrutiny at the Hayne inquiry.

It only took one heart wrenching case study at the Royal Commission to prompt the bank handling more than half the growth in rural lending over the past three years to change its lending policy.

The precarious nature of Australia’s agricultural economy was brought home yesterday when Nufarm issued a horror 2018 profit downgrade because of extended dry weather conditions in Australia. Nufarm’s Australian and New Zealand business is now expected to have earnings before interest and tax of $5 million to $10 million, compared to $51 million last year.

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The big dry

Nufarm said crop growers had anticipated a “normal” winter season but continued dry conditions into July suggest 2018 will be one of the driest seasons on record in many crop regions. Optimistic expectations and poor conditions have led to an explosion in inventory which will harm 2019 profits. Nufarm saw its shares fall 11 per cent after it warned of impending impairments.

Chanticleer wonders when all those connected to the rural sector, from policy makers to farmers, will realise we can no longer rely on historic average rainfall numbers when deciding the definition of “drought”. The sooner we abandon misleading long term averages and look at meaningful time series of rainfall, the sooner there will be a realistic assessment of the viability of land earmarked for agricultural production.

Thorburn’s package of measures to help the rural sector including introducing the equivalent of a home loan offset account for rural borrowers. NAB’s agri customers will be encouraged to offset their Farm Management Deposit against their agricultural lending. This should result in lower interest rates for rural borrowing and encourage competitors to copy NAB.

NAB’s package did not avoid the elephant in the room, which is the inevitable closure of more of the bank’s 350 rural branches. Thorburn is looking for ways to engage with customers affected by branch closures including the possibility of introducing banking buses, which would visit rural areas occasionally.

BT slashes prices

Over at BT Financial Group chief executive Brad Cooper is slashing the cost of the Panorama investment platform in a bid to finally make a $630 million capital investment pay for itself. The move should encourage more independent financial advisers to use the Panorama platform. The Hayne inquiry has put the spotlight on the failure of financial advisers to fulfil their legal obligation to act in the best interest of their clients.

It will be very hard for advisers using more expensive platforms to justify that following Cooper’s price cuts. Industry sources say BT’s platform is now 20 to 40 per cent cheaper than rival products.

The potential negative impact on rival business models was reflected in the share market with many shares hit by the BT move. These include Netwealth down 11 per cent, Praemium down 9 per cent, Hub24 down 6.5 per cent, IOOF Holdings down 5 per cent and AMP down 2 per cent.

Cooper warned that the move to cut Panorama’s fees could cause a $70 million hit to BT’s annual revenue. But it is possible he will more than recoup the lost revenue through gains in market share.

BT has an 18 per cent share of the $880 billion investment platform market. It only needs to lift its market share by about $17 billion to recoup the lost revenue.

tony.boyd@afr.com.au

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