With credit growth hard to come by, Australia's banks have for some time been looking for new areas to drive growth.
With control of an estimated 93% of the mortgage market, credit growth in Australia is a strong driver of performance for our big four banks, but has been falling since the global financial crisis, and it seems highly unlikely that a return to double-digit growth will be seen for some time.
As a result, ANZ Bank (ASX: ANZ) has expanded into Asia, and its big three competitors have taking baby steps into the region. All four major banks have also expanded outside traditional banking into wealth management, and now have a significant finger in Australia's superannuation pie.
Commonwealth Bank (ASX: CBA) has also expanded its local presence in mortgage broking with its recent acquisition of 'Aussie John's' Aussie Home Loans, which should allow the Commonwealth to grow its mortgage book further.
And now it seems Westpac Banking Corporation (ASX: WBC) may have headed off in a different direction, with news out today that the bank has provided Cash Converters International (ASX: CCV) with a $60 million securitisation facility to allow Cash Converters to expand its personal loan book. While the banks and other financial services companies provide personal loans, they are usually for significant amounts such as $10,000 and above. Cash Converters, by comparison, provides cash advances ranging from as little at $50 to $1,000 and personal loans starting at $600 up to $2,000.
For the major banks, loans of this size would likely be more costly to administer, and there's another more sinister side to these smaller loans, provided by the likes of Cash Converters. According to The Australian, Cash Converters charges an interest rate of 48% on personal loans of more than $1,000. That's around four times higher than regular banks, building societies and other mainstream lenders charge. Imagine the outcry if our big four banks charged those rates on their personal loans.
As an aside, after a brief search of the Cash Converters website, I was unable to find any information on what interest rates or other fees they charge, although I did find this statement "Rather than confusing interest rates, we take the time to explain exactly how much you'll need to repay and when."
Foolish takeaway
While Westpac may be looking for new avenues to generate growth, the current loan to Cash Converters is small bickies in the scheme of things and unlikely to have a major impact on the bank's earnings.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.
