The move by Australian banks; Commonwealth Bank, Westpac, NAB, and ANP to put a ban on the practice of self-managed super funds (SMSF) loans happened this year and may have caused a bit of worry among the general public although, for financial experts, this was somewhat an anticipated move. The decision by these banks to discontinue the service of self-managed super funds loans is not holistic, therefore they did not just outrightly shut the doors on everything SMSF, moving it to the history shelf. Instead, the ban is structured in a way that will spread over time before the process comes to a full halt. This spread of action is great to protect the already existing investors in Self Managed Super Funds loans.
What these banks are doing is that they are calling a halt on the creation of new Self Managed Super Funds loans while existing ones will still be fully operational until they are due. Afterward there will not be an option for renewal, then at that time the entire process stops for the bank. In so doing the effect of the ban is not felt very harshly.
Albeit this event, there are still banks that still fully operate self-managed super funds loans as they did not partake in the ban even though the reason for the ban is to prevent a potential event for doom in the continuation of this practice.
With loans, a reduced profit is bad news enough, but the kind of impending problems foreseen with the continuation of SMSF is one of the losses and not just reduced profits, there is no wonder these banks are taking the stand that they are taking at this point. The idea of SMSF practice potentially leading to a disaster is not in anyway a new observation. In fact. Banks have been warned against it since 2015 when the Reserve bank warned against using SMSF for property loans, and since then, others like David Murray and Paul Keaton have stated how it increases the risks of the entire system.
These high-risk predictions are not the only reasons banks moved for the ban, a shortage of cash flow from the Australia Reserve bank to the whole system has put a threat on the entire property market, this even further increases the risks of SMSF loans that had been talked about.
In conclusion, regardless of the bans by these banks, it is still possible to get an SMSF loan from others and still even get a new one or renew an old one. However the entire banking system and property market remain on the lookout of what is to come for SMSF loans and property market.
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