APRA addresses competition concerns

by Madison Utley12 Nov 2019

Yesterday marked the kick-off of COBA 2019, the customer owned banking sector’s annual convention. APRA chair Wayne Byres was among the speakers to address the 650 delegates in attendance from Australia’s credit unions, mutual banks and building societies. 

This year’s theme, Stronger Together, looks to focus on the opportunities for the sector realised through collaboration.

Byres focused his talk on competition within the banking industry, a topic championed by the Customer Owned Banking Association (COBA). According to the APRA chair, it is not so clear cut as to say smaller banks are definitely at a disadvantage as compared to the big four.

“We are at times accused of neglecting competition in our zest for stability. Those comments sometimes overlook a number of steps we have taken in recent years with a competition perspective firmly in mind,” Byres said.

In fact, the chair suggested smaller banks currently have an edge due to the reputational damage sustained by the majors over the course of the royal commission. 

“I would contend that in recent times, smaller ADIs have developed some competitive advantages – the most critical of which is a far better reputation among consumers after the royal commission and other revelations of poor customer outcomes,” Byres said.

“This is contributing to the slow but steady erosion in the dominance of the majors.

“At the same time, the long-term decline in the share of mutuals appears to have definitely ceased and, albeit slowly, mutuals are starting to win back market share.

“There is undoubtedly a real opportunity for the mutual sector to take collective advantage of its favourable perception.”

However, Byres did acknowledge that the low interest rate environment, squeezed margins and dulled profitability are likely to impact smaller banks more significantly than their larger counterparts.

Citing the ‘Stronger Together’ theme, Byres pointed out that, looked at collectively, the mutual sector has $120bn of assets and would rank as the sixth largest ADI in Australia – behind only the majors and Macquarie Bank.

“Given the increasing importance of scale as a means to offset a range of competitive headwinds – including the need to invest in new technology to meet changing consumer demands, boost operational resilience and head off cyber threats – collective initiatives that promote and support the mutual sector as a whole have the potential to generate the scale efficiencies that are needed to genuinely alter the competitive landscape.

“They are not necessarily easy, but they are likely to be essential.”