Non-major slams “huge” industry disparity

by Miklos Bolza28 Oct 2016
The CEO and managing director of non-major MyState has called upon the federal government to take action and tackle continuing inequality between the small and large banks.
 
Speaking at MyState’s AGM on Wednesday (26 October), Melos Sulicich suggested the government further implement the competition recommendations outlined in the financial systems inquiry led by David Murray.
 
He pointed to differences in mortgage risk weights as one of the key contributors to the disparity between major and non-major banks.
 
“The average mortgage risk weight for smaller banks is 39% and we believe the government needs to raise the minimum average mortgage risk weight for large banks to at least the upper Murray report recommendation of 30%, if not above, to address competitive inequality,” Sulicich said.
 
While regulation requires large banks to have an increased average mortgage risk weight of 25%, this was not enough to level the playing field. This disparity was further compounded with smaller banks holding 56% more capital, he added.
 
“This regulatory capital requirement advantage is compounded by a funding cost advantage from an implicit government guarantee of ‘too big to fail’ which helps large banks obtain wholesale funding at significantly lower cost.”
 
With a higher risk weight, non-majors are required to issue fewer mortgages with the same capital. This is ultimately unfair as the risk of the mortgages issued was the same, he said.
 
“We are up for the competition, but our returns are lower due to the risk weight disadvantage. These constraints are stifling consumer choice.”
 
Despite the uneven playing field, Sulicich said MyState had managed to increase its loan book at more than twice the national average, surpassing $4 billion for the first time in October this year. Two years ago, the bank’s loan book was $3 billion.
 
"MyState's strategy has enabled the company to grow without compromising the quality of its loan book. We place great emphasis on strong risk management, and our 30-day arrears are substantially less than regional peers and the benchmark for the big banks.”

Related stories:
 
Major bank to increase mortgage risk weights
 
Major banks respond to APRA's capital raising
 
APRA raises capital requirements for major banks

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