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Banks are urging the federal government to change their deposit guarantee scheme in a bid to reintroduce competition to the market.
Currently under the scheme, smaller lenders with lower credit ratings are forced to pay higher costs than the big four banks.
Banks with a AA credit rating pay an annual fee of 0.7 per cent for the government guarantee, while those with an A rating pay 1 per cent and those with a BBB rating pay 1.5 per cent.
ABA chief executive David Bell told a senate hearing on Friday that the difference should be narrowed so that regional banks, building societies and other lenders would not have to pay so much to attract funds.
Bank of Queensland chief financial officer Ram Kangatharan told the Australian Financial Review that the fee structure forced smaller banks to pay not only the government fee but the additional lending costs expected by the market.
Mr Kangatharan said the net effect was to impose an additional 1.2 percentage point margin on smaller lenders making it difficult for them to compete in the mortgage market.
He is currently calling on the government to impose a flat fee of 0.7 per cent.
Banks are urging the federal government to change their deposit guarantee scheme in a bid to reintroduce competition to the market.
Currently under the scheme, smaller lenders with lower credit ratings are forced to pay higher costs than the big four banks.
Banks with a AA credit rating pay an annual fee of 0.7 per cent for the government guarantee, while those with an A rating pay 1 per cent and those with a BBB rating pay 1.5 per cent.
ABA chief executive David Bell told a senate hearing on Friday that the difference should be narrowed so that regional banks, building societies and other lenders would not have to pay so much to attract funds.
Bank of Queensland chief financial officer Ram Kangatharan told the Australian Financial Review that the fee structure forced smaller banks to pay not only the government fee but the additional lending costs expected by the market.
Mr Kangatharan said the net effect was to impose an additional 1.2 percentage point margin on smaller lenders making it difficult for them to compete in the mortgage market.
He is currently calling on the government to impose a flat fee of 0.7 per cent.
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