It was with disappointment I read the Murray Review interim report to find it made little mention of non-bank lenders and the restrictions to obtaining authorised deposit-taking institution status. Perhaps I was being overly optimistic that the review would take a real look at the protectionist attitudes towards banks in Australia.
Instead, the review seems to indicate competition in the sector is healthy; I suppose it is if you happen to be one of the big four banks who doesn’t need to dabble in competition much beyond keeping up with the other three.
Australian banking regulations restrict private ownership of an ADI to 15 per cent, which creates the ideal environment for big banks to maintain their dominance. How does anyone with an appetite for competition get a foothold in the sector to shake things up and give customers some choice?
Our sector is moving ahead at a cracking pace with virtual technologies taking the place of the traditional branch network. That creates savings which can be passed on to customers in the form of competitive interest rates and cut-price fees.
Competition in the banking sector was the reason the treasurer called for the Financial System Inquiry in the first place. Firstmac’s submission to the inquiry argued for easing of restrictions on private ownership of ADIs. It looks like that went in the circular file.
APRA claims ADI ownership restrictions are in place to enable a bank to raise capital through its shareholders. But an inconsistency exists because mutual credit unions and building societies don’t have shareholders, they have members. They are unable to raise capital through their membership yet they remain ADIs.
As long as the big four banks are allowed to maintain their stranglehold on the finance sector, competition will be limited and customers will continue to pay more.
Market conditions are ripe for banking products to be opened up to greater competition in the same way home loans were in the early 1990s. But under the current legislation, it can’t happen and the content of the Murray Review interim report shows the Financial System Inquiry has no interest in addressing that.
The MFAA echoed Firstmac’s call for increased competition in a submission to the Senate Inquiry into Housing Affordability.
The MFAA states APRA regulations keep the average interest rates available to borrowers higher than they could be.
They claim the four major banks hold 79 per cent of the housing loan market, compared with 58 per cent before the global financial crisis.
"Although the big four argue that they compete aggressively with each other in the market, all their loan products and interest rates are very similar and appreciably higher than those of many smaller lenders," the MFAA said in its submission.
Australian banking legislation has not kept pace with advances in technology, consumer behaviour and customer expectations. The system has passed its use-by date and it needs to change.
Unfortunately, the Murray Review looks like it is not the vehicle to drive that reform, even though it was touted as having the capacity to pull legislation regulating the Australian financial sector into the current age.
Perhaps it has the capacity but lacks the inclination.
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Kim Cannon is the founder and managing director of Firstmac Limited. He has been in the Australian finance industry for the past 30 years, and has owned a number of different companies and brands in that time. He was there at the start of the non-bank lending industry in Australia, and was one of the leaders that challenged the banking industry at the time and made home loans more competitive for everyday consumers.
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