The industry association has warned that a new $6.2 billion levy over four years on the top five banks contained in the federal budget could backfire on borrowers if the banks react badly.
FBAA executive director Peter White said that while the government’s move is aimed at helping smaller banks compete with the big five, there is a risk the big banks could increase interest rates to cover the tax.
“I dare say the banks won’t simply absorb this levy, and if they don’t, this will be a bad outcome for home loan and business borrowers,” Mr White said.
“It’s possible the banks could raise interest rates and that could put housing affordability out of the reach of more borrowers, so we are urging the banks to give an ironclad guarantee that they won’t pass on those costs.”
Mr White welcomed the budget initiative to bring forward a comprehensive package of reforms to strengthen bank accountability and competition.
He said the banks will need to be more accountable with the government to legislate a new banking executive accountability regime.
“It will increase competition in the financial system and improve consumer choices.”
Small business initiatives outlined in the budget also meet the FBAA’s approval, including the extension of the $20,000 immediate tax asset write-off for businesses with up to $10 million turnover.
Mr White said the budget also contained positive news for finance and mortgage brokers in other areas such as the government accepting all 11 recommendations of the Ramsey Review to combine the two industry ombudsman services into the Australian Financial Complaints Authority (AFCA).
The FBAA advised in December last year that such a move would bring better consumer and business outcomes for those needing to access this service.
The association had also been signalling over the past 11 months that the treatment of serviceability for credit cards needs to be based on repaying the limit on a principal and interest basis over a defined term.
“The government has now confirmed this will be the case, among other beneficial consumer reforms, the banks will need to comply to,” Mr White concluded.
[Related: Firstmac party finds new home at FBAA]
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James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.