Treasury secretary Ken Henry has raised concerns about the increased market power of the major banks.
Speaking at the annual Count Financial conference in Canberra yesterday, Dr Henry said the sector was facing two key issues: competition among lenders and regulation.
“While all of Australia’s financial institutions have experienced a drop in profits as a result of the crisis, the fall in profits has generally been more pronounced for the smaller institutions,” Dr Henry said.
“It’s also true the major banks’ net interest margins increased over the crisis.”
Since the onset of the global financial crisis, CBA and Westpac have been responsible for nearly all the growth in mortgages.
According to Dr Henry, the big banks’ dominance is due to the frozen securitisation market on which many smaller lenders relied to sell mortgage-backed securities to fund their operations.
But despite the glum outlook for smaller lenders, Homeloans general manager third party distribution Tony Carn told The Adviser that there was evidence to suggest competition was returning to the sector.
The mortgage originator recently lowered its interest rates on the flagship range of Premium home loan products by 10 basis points, in a bid to be more competitive.
“We are looking to position ourselves as a viable alternative to the major banks,” Mr Carn said.
“I think there will always be room for competition and now is the right time for us to ramp up our presence in the market.”
Mr Carn said pricing aside, smaller lenders could more effectively compete with the majors on service and turn-around times.
“We don’t have any channel conflict, so we can get loans processed quicker and with greater ease than the majors.”