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Will 2020 be the rise of the non-bank lenders?

As the property market continues to heat up, investors and developers are likely to look for new sources of funding, with the non-bank lenders tipped to grow in 2020, an industry expert has suggested.

According to Metrics managing partner Andrew Lockhart, both developers and investors are likely to drive this change due to structural and cyclical trends.

One of the hallmarks of the Australian corporate lending market has been the bank dominance of the sector, with the domestic banks currently holding around 70 per cent market share.

Due to the large balance sheet capacity and accompanying capital required to operate in the market, barriers to entry are significant.

However, Mr Lockhart noted that the non-bank lenders are likely to grow moderately over the coming year as the banks continue to face pressure from the royal commission.

“Banks are under significant regulatory pressure to reign in their loan portfolios to meet stricter capital requirements, which has opened up opportunities for non-bank lenders to claim a greater share of the >$900 billion market,” Mr Lockhart explained.

Mr Lockhart added that institutional capital is also driving this corporate loan growth. “The asset class is a key component in institutional portfolios, particularly for those seeking income-producing assets at a time of low yields, and over 80 per cent of managers expect to raise more capital from pension funds and insurance companies in the near future.”

Mr Lockhart notes that raising capital for property developments can be a long and expensive process. “The property sector is an attractive opportunity to build a relationship with a lender rather than relying on commoditised lending products offered by the banks.

“Given the pullback in bank funding in Australia, along with the appetite we are seeing from borrowers of all sizes for alternative sources of funding, we could well see more sizeable transactions in the Australian market in the years to come,” Mr Lockhart concluded.

by Cameron Micallef | January 20, 2020