Banks offering more attractive home loans

(Published in the StarBiz news, 14th November 2011 issue: page 2)

By DALJIT DHESI 

PETALING JAYA: With razor thin margins due to rising competition in the home loans market, banks are now aggressively value-adding their home loans to stay competitive and boost their market share.

OCBC Bank (M) Bhd head of secured lending Thoo Mee Ling said banks must value-add to their generic home loan offerings in order to not just survive but thrive, especially in this competitive climate.

“What separates those who thrive from the others today is how much they have moved from price to innovation. It is heartening to see a greater emphasis today on enhancements to loans products, rather than mere reliance on price cutting previously.

“This is where banks are getting even more creative by adding in the necessary finer details to a product that otherwise appears bland. Home loans with features and benefits that are tailored specifically to complement customers' lifestyles often serve to compel them to look beyond price and into a more holistic perspective,'' she told StarBiz.

Thoo said customers were nowlooking for more than just a home loan as purchasing a house was simply the beginning.

Banks would also need to cater to their immediate follow-on needs like renovations and furnishing, for example, and this was where additional financing that came with the home loan would be helpful, she reckoned.

At OCBC Bank, she said there were bespoke home loans that were tied in with study loans, renovation loans and even overseas property financing schemes, adding that each of these took into consideration things that went beyond mere property purchase.

She said it was undeniable that investing in a product to bring in customers and then introduce them to other products remained a good strategy for growing the business, but banks would still need to strengthen their range of offerings to become a one-stop shop for their customers.

Outstanding home loans, valued at RM261bil, accounted for about 27% of the total banking system's loans as at end-September 2011. Although there has been strong expansion in home loans in the last couple of years, the proportion of home loans has been hovering at 27% in the past five years.

Commenting on home loans, RAM Ratings' head of financial institution ratings Wong Yin Ching said competition among banks in the home loan market had been rife, resulting in razor thin margins in recent years.

This stemmed from the homogeneity of the home loan products, whereby any innovation in product features and price competition (by lowering rates) were quickly replicated and matched by market players, she said.

Wong added: “While some banks have instilled more discipline in its risk-reward pricing, aggressive pricing is still seen in the market and this is unhealthy and unsustainable in the long run.

“Going forward, we think that personalised services and quicker turnaround times by banks would be key to stay relevant in the home loan market.”

Alliance Bank Malaysia Bhd executive vice president and head of consumer banking Ronnie Lim said competitive pricing aside, Malaysian banks were now re-inventing the mortgage landscape by extending superior customer experience at every customer touch point.

For the bank, he said having mortgage specialists, who also acted as advisory consultants, among others, had enabled Alliance Bank to become one of the key mortgage players in the market.

He said the bank has been growing its mortgage specialists force extensively to not only engage customers effectively but also deepen its relationship with developers, lawyers and real estate agents.

Lim added the bank was also able to provide fast “approval in principle” service to assist customers looking for home financing solutions to make informed decisions before committing to their choice property.

For mortgage players, he said one of the key challenges was about overcoming margin compression and the bank was able to achieve this by introducing new systems and processes to help staff increase their productivity.

This had since yielded results: “For the year under review, sales productivity has increased threefold compared to a year ago,” he said.