The Australian Bureau of Statistics revealed just last Monday morning that total lending in Australia has soared to 7.6% in June, pushing lending finance to $72.9 billion, the highest the country has experienced since January 2008. Total lending includes personal loans, home mortgages, commercial lending, and lease financing.
ABS figures also shows commercial lending to be the primary driver of the growth — commercial or business finance has increased 12.1%, which pegs it at $46.495 billion. Housing finance also went up for owner/occupiers, increasing 1.8% at $17.070 billion. Lease finance has increased 0.9%, while interest rates continue to be at an all-time low of 2.5%. Rates were cut by the Reserve Bank of Australia in August last year. Meanwhile, personal loans fell to $8.505 billion, down 1.8% from June to May. Both Personal revolving credit and fixed lending commitments have also decreased to 3.3% and 0.6%, respectively.
Data reveals that lending has now returned to its normal state after being affected by the global financial crisis (GFC) in 2007-2008. The GFC is believed to have started after US investors lost confidence in sub-prime mortgages, leading to a liquidity crisis and making loans very difficult to give or obtain. As a response, the US Federal Bank injected huge capital into financial markets. This didn’t solve the problem, however, and the crisis worsened. As the value of homes dropped sharply, many homeowners found themselves unable to meet mortgage repayments.
In Australia, government responded to the GFC by allocating two economic stimulus packages to help boost the economy. The first package that totaled $10.4 billion was given in December 2008 to fight inflation; and included support for families, careers, seniors, and the automotive industry. The second package was announced February the next year. A total of $47 billion was allocated to boost the ailing economy. The budget was divided and given to schools, new homes, infrastructure, cash bonuses, home insulation, and small business tax breaks.
Some analysts view the recently released data positively, while some are more reserved in their analysis. CommSec chief economist Craig James says that post-GFC total lending “in original terms” is now on its second highest at $84.1 billion, although this isn’t as high as it was pre-GFC. The highest lending has ever been was in the same month of 2007 at $90.8 billion.
Even though data seems to show that Australians have become more cautious when it comes to personal loans, James says that both housing and personal loans are on the rise compared to last year’s statistics and that the “outlook is improving for equipment and services businesses and discretionary retailers.” The analyst also hopes that the rise in commercial lending actually translates to new investments being made, which in turn means more employment opportunities for Australians:
“Simply, consumers and businesses are embracing cheap financing. And hopefully in the case of business, some of the extra dollars are being put to work in new investment, in turn leading to the hiring of more staff.”
Also according to James and as reported in the Sydney Morning Herald, the increase of lending in Australia indicates that the economy has “healthy momentum…provided by recovering consumer confidence, increased lending and solid home construction.”
Meanwhile, Callam Pickering at the Business Spectator has less cheerful take on the recent statistics. He states that low interest rates are supporting commercial and household lending but have also considerably lost momentum this year. In addition, he warns that the low interest rates may have encouraged investors and owner-occupiers but as experience has shown in the past, periods of strong activity are typically followed by decline in lending activity. The low rates, Pickering says, have also mainly benefited house prices and not productive business investments.
Emphasizing the volatile nature of revolving credit facilities, Pickering takes the rise in commercial lending “with a grain of salt”. He argues that the large spikes in commercial revolving facilities, up 38% in June, are temporary as seen when statistics rose to around 50% in June 2013 but plummeted to almost 30% just the next month. A similar occurrence also happened in January 2009 and October 2011. Despite this, Pickering says that revolving credit facilities are still useful tools if businesses struggle to settle debts and customers become slow in repayments.
Pickering suggests keeping track of loans made to housing investors and fixed credit facilities. Says Pickering, lending to fixed credit facilities will affect non-mining investments for small businesses in particular. Lending to housing investors, on the other hand, will have a great implication on housing prices the next year.
Bitcoin slumps 6%, heads for worst week since March
By Ritvik Carvalho
LONDON (Reuters) – Bitcoin fell over 6% on Friday to its lowest in two weeks as a rout in global bond markets sent yields flying and sparked a sell-off in riskier assets.
The world’s biggest cryptocurrency slumped as low as $44,451 before recovering most of its losses. It was last trading down 1.2% at $46,525, on course for a drop of almost 20% this week, which would be its heaviest weekly loss since March last year.
The sell-off echoed that in equity markets, where European stocks tumbled as much as 1.5%, with concerns over lofty valuations also hammering demand. Asian stocks fell by the most in nine months.
“When flight to safety mode is on, it is the riskier investments that get pulled first,” Denis Vinokourov of London-based cryptocurrency exchange BeQuant wrote in a note.
Bitcoin has risen about 60% from the start of the year, hitting an all-time high of $58,354 this month as mainstream companies such as Tesla Inc and Mastercard Inc embraced cryptocurrencies.
Its stunning gains in recent months have led to concerns from investment banks over sky-high valuations and calls from governments and financial regulators for tighter regulation.
(Reporting by Ritvik Carvalho; additional reporting by Tom Wilson; editing by Dhara Ranasinghe, Karin Strohecker, William Maclean)
Britain sets out blueprint to keep fintech ‘crown’ after Brexit
By Huw Jones
LONDON (Reuters) – Brexit, COVID-19 and overseas competition are challenging fintech’s future, and Britain should act to stay competitive for the sector, a government-backed review said on Friday.
Britain’s departure from the European Union has cut the sector’s access to the world’s biggest single market, making the UK less attractive for fintechs wanting to expand cross-border.
The review headed by Ron Kalifa, former CEO of payments fintech Worldpay, sets out a “strategy and delivery model” that includes a new billion pound start-up fund and fast-tracking work visas for hiring the best talent globally.
“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.
Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.
“This review will make an important contribution to our plan to retain the UK’s fintech crown,” finance minister Rishi Sunak said, adding the government will respond in due course.
The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance all mean the sector’s future in Britain is not assured.
Britain increasingly needs to represent itself as a strong fintech scale-up destination as well as one for start-ups, it added.
The review recommends more flexible listing rules for fintechs to catch up with New York.
“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.
The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).
“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.
Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.
“It’s a question of knowing who to call when there’s a problem,” Swinburne said.
($1 = 0.7064 pounds)
(Reporting by Huw Jones; editing by Hugh Lawson and Jason Neely)
Enhancing efficiency in international trade – the time is now
By Carl Wegner, CEO of Contour
Despite significant advances in digital enterprise technology in recent years, international trade remains overwhelmingly manual and fraught with inefficiency.
Financial market participants spend millions of dollars to save fractions of seconds. Central banks are rushing to offer “fast” domestic payments in under three seconds. But cross-border trade relies on payments involving more than one country and bank, with no common central bank to provide cover and currency conversion. It takes at least a day or, in most cases, two – and that’s not even the most inefficient part of cross-border trade.
These processes are lightning quick compared to trade-related finance and risk mitigation products such as Letters of Credit (LCs), which can take over a week to settle. These involve more parties, more complexity, more paper and less trust.
In global trade finance, a bank will agree to pay an overseas seller after receiving proof that the seller has met their obligations. There is no common network for the seller to provide this proof, and no global database of shipments. Sellers rely on the gold standard of banking communication: wet ink-signed paper documents. Collecting, presenting and checking these documents can take days, if not weeks, stalling payments and leaving goods sitting on the dock rather than working through the economy.
The perceived credibility of “wet ink” signatures on documents is holding the industry back even as other areas are embracing new technologies. Unfortunately, it is all the industry has and the highest common denominator of communication. Bringing trade finance into the twenty-first century will need the development of a new gold standard – a common and trusted digital infrastructure. Luckily, the technology to ease this change and inject massive efficiency gains into the industry is now available.
More than a few small tweaks
Banks, buyers, sellers, shipping companies, ports, customs, and so on; the number of parties involved in international trade and the relative lack of trust among them makes any change a significant challenge.
Even before paper documents are involved for proof of shipment, there are trust challenges in communication for trade finance. While banks have a trusted form of communication among themselves, this does not extend to corporates or other parties. These groups are left with paper communication, email and fax – hardly efficient methods of communication. The industry needs a network, a common identity, and a way to share data securely and privately with all participants. This is the first step and can lead to significant increases in efficiency, especially if communication between participants can be synced in real-time.
Building the network
The future of global trade communication is decentralised. With today’s technologies, it is no longer feasible to have the world’s sensitive trade data sitting in one place susceptible to attack or commercial manipulation.
Every bank and corporate must own their own data and share it only with their trading partners where necessary. Decentralised technologies go further than this, allowing data to be synchronised with trading partners, enabling a new level of trust between parties through the deceptively complicated concept of ”what I see, you see”.
The practicalities of title transfer
The problem of paper and wet-ink signatures seems simple to solve once the network is in place. Remove the couriers, upload PDFs of all that paper onto the decentralised and synchronised network built to authenticate the sender, and trade is digitised. However, while this process is easy in theory, the variety of documents involved in a single transaction complicates matters – especially when it comes to the transfer of title.
The bill of lading is a key example of this – issued in triplicate on original letterhead and signed by an authorised party on behalf of the ship’s captain. They represent title to the documents and can be used as a negotiable document much like a bank cheque.
Digitising these documents has come a long way in the last few years, with specialised platforms and digital registries created and new legal standards drafted to allow electronic bills of lading (eBLs) to be used instead. But adoption still lags behind, and for their efficiency to be realised across the majority of global trade, the concept of digital documents such as eBLs needs to be married to decentralised networks for trade finance.
The security issue
For documents not related to title transfer, the long-held argument that an original signed document is more secure than a digital version is extremely outdated. With the right protocols in place, a digital document can present a more private and secure option than its physical counterpart.
Even an uploaded PDF can be a “digital document” with the right controls in place. Using a decentralised network every member will have an immutable audit log for every transaction, with the uploading party taking responsibility for the documents they introduce to the network in the same way a sender can take responsibility through their signature. These security protocols will also enhance the time it takes to manage trade documents, allowing parties to track and match items to real-time data.
There has already been phenomenal success in combining a decentralised network with electronic bill of lading solutions. Rather than seven days, the time from presentation to payment instruction can be reduced to 24 hours. However, for any of this to be achieved at scale, we need coordinated collaboration to ensure a new global digital standard can emerge, rather than a series of disconnected digital islands.
Fortunately, the industry is well on its way. The Asian Development Bank recently reported that 85% of banks are gearing up to serve the trade finance needs of more businesses through technology, addressing concerns such as inefficiencies and KYC, showing a clear demand for more efficient processes to be established in the sector.
While removing a few hours from overseas payments is a worthwhile goal, reducing a week from trade finance processes can have an even greater impact on businesses’ working capital efficiency and accelerating growth in the wider global economy.
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