Non-Bank Lenders Continue to Offer Unique Opportunities in Evolving Market

Non-bank housing credit experienced a slight contraction in early 2023 after a period of growth of 21% (on a six-month-ended annualised basis) in mid-2022. This decline can be partially attributed to the general slowdown in the housing market, which has decreased demand for housing credit. Despite the intense pricing competition among banks for borrowers, non-bank lenders continue to provide valuable services to borrowers who may not fit traditional bank lending criteria. 

Non-banks typically providing more loans to self-employed borrowers, those in industries more susceptible to economic fluctuations, and borrowers with higher loan-to-income ratios. The potential risks to financial stability posed by non-bank housing lending remain low, as they account for less than 5% of total housing lending. Non-banks have consistently maintained lending standards throughout various market cycles, with 90-day loan arrears comparable to those at banks and currently at historical lows. 

While non-bank housing credit growth slowed, business credit growth has experienced a substantial increase, reaching 25 percent on a six-month-ended annualised basis in early 2023. Non-banks have been at the forefront of property lending, including loans to self-managed superannuation funds. As banks have scaled back on higher-risk business lending in recent years, non-banks have successfully filled the gap, accounting for approximately 8% of total business credit. This diversification helps limit risks to financial stability.  

Although non-bank lending can exhibit different characteristics compared to bank lending, it is important to recognize the vital role non-banks play in providing financing opportunities for various segments of the market. Australia's non-bank lending sector remains a relatively small portion of the overall financing landscape compared to other jurisdictions but continues to offer unique opportunities for borrowers and contribute to a diverse and stable financial ecosystem. 

Source: (https://www.rba.gov.au/publications/fsr/2023/apr/australian-financial-system.html)