Changes to banking regulations have led to higher interest rates on bank loans for SMEs and personal loans, pushing borrowers towards the rapidly growing new segment of non-bank lending for faster and better service.
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Doubts about the value of franking credits under Labor’s proposed policy have already led to a rise in spreads on hybrids, which might throw up good investment opportunities.
Hybrids are no more ridiculous than shares for retail investors, especially bank and insurance company issues. The increase in common equity in banks has improved the quality, but investors must be paid for the risk.
Investors received a wake-up call to the potential risks of hybrid and subordinated securities following the collapse of Banco Popular Espanol, and the price falls in Australian hybrids shows the market took notice.
A recent change to banking regulation has significant implications for term deposits. With 31+ day break or notice clauses becoming more common, a large difference in deposit rates is expected.