Poor decisions by the regulators are having adverse effects on competition within the banking sector, says one major industry association.
In a statement to the Productivity Commission Inquiry into Competition in the Financial System, Mark Degotardi, CEO of the Customer Owned Banking Association (COBA) said the Australian Prudential Regulation Authority
’s (APRA’s) macro-prudential crackdown on investment lending was one example of the regulator creating an uneven playing field.
“APRA’s 10% cap on investor lending growth entrenched the major banks’ share of this market and undermined competition. Investor lending made up 40% of major banks’ home loan portfolios, almost double the proportion of our sector.”
This decision entrenched already problematic issues with competition in the banking sector, Degotardi said.
“APRA’s blanket investor lending intervention has harmed our sector’s competitive position and enabled the major banks to reprice their investor loan portfolios without fear of losing market share – increasing their profits and further entrenching their dominance.”
These problems could be avoided or reduced if APRA’s mandate included an explicit “secondary competition objective,” he said.
This would mean the regulator is forced to consider the impact of its primary objectives on competition. It would also enhance accountability by requiring APRA to report annually against this secondary objective.
To add to the industry’s woes, increasing compliance costs are more difficult to mitigate for the smaller banks which, unlike the majors, cannot spread these expenses over a large asset base, Degotardi said.
“Increasing the focus of regulators and policy-makers on the impact of regulatory compliance costs, and minimising those costs where possible, will promote competition.”
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