If you weren’t in the industry since before 2008 you could be for thinking that we only see bad banking decisions and negativity on a one way journey through the crash.
Today though Ptsb came out with what we believe is a deeply pragmatic broker offering that is rooted in good ethics and common business sense.
The first thing is the return of the Service Level Agreements which have been largely absent in the market of late, given recent backlogs in many lenders this is a very positive development for both industry and clients of financial firms. It’s frustrating waiting weeks on end for a credit decision.
The other thing they have done is follow AIB’s lead by removing the cap on procurement fees. When we are brokering loans and do one (for instance) for €1,000,000 the maximum we can earn at present is €1,500 although this may take 40 hours of work to perform, plus costs, administration and all other fixed and variable overheads. It has been one of the key drivers of brokers out of the intermediary channel and resulted in reduced market access to people seeking independent advice.
As banks close branches it does make sense to replace some of that distribution with alternatives such as brokers and direct (internet/phone lending) and to do this firms have to be able to make income rather than slowly get ground down.
The idea of ‘clawback’ will remain for loans that get redeemed (paid off or re-mortgaged elsewhere) but also for loans that go into 90+ days arrears. This is something we discussed with Ptsb in the past being of the belief that intermediaries having no downside on arrears lead to badly aligned incentives. There is a cut off time of 18 months which is far shorter than the redemption clawback period but going further is using a broker as a hedge rather than accepting credit risk on the lender.
So while this will be seen as ‘hurting brokers’ it is probably the more ethically correct way of approaching things and for our part we commend that.
Another thing which we believe is positive is an increase in procurement fees on lower loan to value cases, these cases are key to helping a bank have a higher level of assets and finding them is not always simple so rewarding with procurement fee – given the loans tend to be smaller – also helps brokers remain sustainable.
We’re sure to fall out with Ptsb tomorrow or next week or in a month as we do with every lender, be that as it may, right now it’s hats off to them, sensible thinking and a positive step towards a functioning credit market is exactly the kind of thing Ireland needs.