By: Jessica Darnbrough
Funding costs and lower margins on home lending are stopping second tier lenders from being competitive, a new review has found.
According to research conducted by ING DIRECT, Australia’s 5th largest retail bank, the lack of competition in the market is being further exacerbated by a national shortfall in savings.
“The shortfall in savings and reliance on securitisation means second tier banks are at clear disadvantage to the big four,” ING DIRECT chief financial officer Mark Mullington said.
“Since the global credit crisis second tier banks are paying relatively more for funding than the big four and the longer term trend is for this imbalance to continue.”
According to Mr Mullington, the majors have a structural and cost of funding advantage over smaller competitors.
While the immediate cost of funding has stabilised, it has done so at a much higher rate than pre- GFC.
Moreover, the ING DIRECT review of bank funding shows the total Australian saving pool represents just 34 per cent of funding needed for housing and business.
Mr Mullington said while there are promising signs in the securitisation market, current pricing is not profitable.
“There is a structural problem in the Australian banking system that needs fundamental reform,” he said.
The funding problem comes as Australian banks scramble amongst each other for savings with some paying unsustainable rates to attract funds. Basically you have banks fighting for savings from a pool that is simply too shallow.”
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