Interview with Max Bronzwaer, Director and Treasurer at Obvion and speaker at the Hypotheekweek 2015. His lecture covers the subject “The relationship between mortgage lending on the one hand and funding and balance sheet management on the other“.
Max Bronzwaer: “Mortgages have a number of options and features embedded in them which are related to interest rate risk, liquidity risk and funding. From the customer´s point of view, you would like to give him as much options and freedom of choice as possible. However, there are no such choices in the capital markets. An example is prepayment of part of the mortgage. Normally there is a net present value penalty for the borrower, the amount of which is equal to the interest rate difference between the lower current rate and the old contract rate. In the case of Obvion, every customer can prepay 20% of his loan per year without a penalty. However, against every loan there is a loan in the capital market, because banks need to fund the mortgages they provide. But if you prepay a capital market loan, there is no such thing as a penalty free prepayment. Mortgages are consumer products and balance sheet management and funding are about professional capital market conditions.”
Max Bronzwaer: “Of course there is tension in the sense that marketing departments are naturally oriented towards customers i.e. the borrowers. However, at least in Obvion, there is no classical contradiction between Marketing and Treasury. Treasury also feels responsible for the client relationship and the customer intimacy we strive for. Marketing also feels responsible for financial result and funding. Both customer satisfaction and adequate external funding are targets for every member of our Management Team, including Marketing, Treasury, Operations. So there is certainly a natural tension between Treasury and Marketing, but it’s not a classical one at Obvion.”
Max Bronzwaer: “Absolutely. In a lot of companies, the commercial division is totally or too much separated from the Treasury department. At Obvion – we are a fairly small company – the deliberate choice has been made to keep these departments close together. Treasury as well as Marketing are business departments, not staff departments. That basically reflects that we are jointly responsible for customer satisfaction and financial result and risk. In practice we have lots of different opinions, but there is a good balance. From the Marketing point of view, you need to be perceptive to the financial and risk angle. But that also goes the other way around: from the Treasury perspective you need to be perceptive to the customer angle.”
Max Bronzwaer: “The most important element for an investor is credit risk. That may sound cynical, but the performance of our portfolio is basically the only thing an investor cares for. They only care for customers in an indirect way: satisfied customers are calm and easy and won’t wrinkle the pond and create risk. The single most important concern is the credit risk and the performance of the portfolio. This coincides perfectly with what has always been part of our mission and our key policy: responsible lending. What’s very good about that is that the interest of the customer (not necessarily his need) and the company are totally aligned. A euro of loss for Obvion is a euro of residual debt for the client. That sometimes leads to tough choices, where you reject applications because we think it is not responsible for a customer to buy his dream house.”
Max Bronzwaer: “ First, get a good feeling about what the other side is doing, what the other side is worrying about. You can get a good idea about what is happening on the client side by participating in customer panels, advisory panels, go on trips visiting intermediaries with an account manager, etc. as Treasury you need to explain to the marketing people how the price of a product is build and why some options cost money.
Secondly, markets are moving constantly. If you see new developments at the capital markets side, you have to incorporate these developments in the product – so it can be beneficial for the customer. If risk is reduced, this can be translated in the price of the product. But when a new product seems very appealing from a marketing perspective, it also has to be checked with the capital markets side if this is acceptable for the investor. Products can not easily be changed in the middle of the lifetime of the product.
But understanding is the most important thing, place yourself in the position of the customer in the context of the relationship between mortgage lending on the one hand and balance sheet management and funding on the other hand. Both the consumer/borrower and the investor/funder are the customers of Treasury and of Marketing and need to be treated as such.”
Geplaatst op: 3 december 2015
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