Xinja chair Lindley Edwards
Xinja Bank has applied for financial support under the Morrison Government’s JobKeeper program as investor concerns intensify over recent staff departures and a strategic decision to delay entry into the retail lending market.
P&L Corporate, an external public relations firm that represents Xinja, confirmed to Banking Day on Monday that the bank had enrolled with the Australian Taxation Office to secure government support to pay staff.
“Xinja Bank has applied for JobKeeper, having carried out the self-assessment,” the P&L spokesperson said in an emailed response to an enquiry from Banking Day.
Banking Day also put other questions in writing to the company but the P&L spokesperson indicated yesterday afternoon they could not be answered in time for this article.
Most Australian banks and credit unions are eligible to apply for government assistance under the JobKeeper program except for the four major banks and Macquarie.
Xinja is the first bank to confirm that it has applied for such support.
Sources with knowledge of recent developments at the company told Banking Day the bank had terminated staff this month including a senior lending manager who was a direct report to deputy chief executive, Andy Rigg.
The Covid-19 crisis is testing Xinja’s business case, with the chief executive Eric Wilson under pressure from shareholders to launch the lending operation to help douse the fierce cash burn on deposits.
Xinja entered the retail deposits market in February with aggressive pricing of 2.25 per cent on its Stash product.
It continues to pay market leading rates to account holders who poured more than A$470 million into the bank by the end of March.
However, without a lending business to generate revenue, the bank is now in the invidious position of watching its capital base erode.
The current regulatory capital position of the bank is not clear, with the bank’s critical development of digital banking platforms also chewing up cash resources.
It remains uncertain whether Australian and offshore regulators will approve the proposed A$433 million investment in the bank by the Dubai-based World Investments.
While WI’s chief executive Zayed Bin Aweidha confirmed to Banking Day on 12 May that his company was “going forward with the investment”, the cash is not likely to land on Xinja’s balance sheet for some time.
The investment needs approval from Dubai regulators, APRA and the Foreign Investment Review Board.
Given that WI would secure control of the bank under the arrangement, there is no regulatory guarantee the investment will survive the FIRB process.
The delay presents an existential dilemma for the Xinja board and senior management team who might be forced to expedite another equity raising to enhance the immediate capital position of the bank.
If that solution is judged to be necessary but out of reach in the current economic circumstances, Wilson and the company’s chair Lindley Edwards might have to contemplate the extraordinary prospect of handing in the banking licence that APRA granted them only seven months ago.
While that might release Xinja from capital constraints of being a bank, it could also jumble the perceptions of thousands of customers who have already parked their cash under the brand.
Other digital banking startups might end up as collateral damage under such a scenario as spooked investors could move to unwind exposures to challenged business cases across the banking fintech sector.
Many of the business models of startup banks came under pressure from the declining rate environment almost 12 months ago.
The lockdown measures triggered by the pandemic are intensifying those strategic vulnerabilities.
There is no question that the timing of the Covid-19 crisis has been especially unkind to Xinja’s foray into retail banking, but it has also magnified strategic missteps of senior management.
Even if Xinja is able to launch a home loan next month – as was flagged by Wilson in a blog post at the end of March – the expensive deposits likely dictate uncompetitive pricing for the mortgage product.
It could be that Xinja is the first of a raft of deposit taking institutions to apply for JobKeeper support to help weather their operations from the economic disruption.
While the Customer Owned Banking Association has briefed its member institutions about the ATO guidelines for JobKeeper, the industry body said last night that no credit union or mutual bank had enrolled in the scheme.
“COBA is not aware of any members applying for the JobKeeper program,” said COBA chief executive, Mike Lawrence.