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Govt guarantee withdrawal to create competition

Staff Reporter 4 minute read

By: Staff Reporter

With the government guarantee set to be completely withdrawn this Wednesday, some of the banking industry’s smaller players are optimistic about the future of competition in the sector.

ME Bank’s new chief executive Jamie McPhee said the loss of the guarantee would not inhibit the bank’s ability to provide competition to the four major banks.

When the wholesale funding guarantee was available, ME Bank managed to raise $1 billion in two medium term note issues of $500 million each.

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Mr McPhee said the loss of the government guarantee was occurring at a time when life was returning to the residential mortgage backed securities market.

“I always thought it was premature for people to be calling the death of RMBS market,” Mr McPhee told the Australian Financial Review.

“I think what happened was that mortgages became a dirty word globally and the baby got thrown out with the bath water... the fact is that Australian mortgages have performed extremely well. They have strong cash flow and very low rate of arrears...I am quite optimistic about the RMBS market in Australia.”

But while Mr McPhee remains optimistic about the future, Bendigo and Adelaide Bank chairman Robert Johanson said the structure made the industry widely uncompetitive and vulnerable to the “next shock”.

“The structure we have now is far fewer players, and in part that’s a result of a structure of the guarantee which did give pricing advantages to the major banks,” Mr Johanson said.

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