Mortgage brokers have been recognised for their role in expanding the distribution networks of smaller residential lenders.
The Australian Prudential Regulation Authority
(APRA) gave these views in a recent submission to the Productivity Commission on competition in the Australian financial system.
“While smaller banking providers do not always offer the same account-based service or features, for instance widely available ATM or branch networks, they are to a large degree able to obtain wide distribution through the use of brokers and technological advances,” the regulator wrote.
“These factors, in addition to competitively priced products, appear to have assisted smaller providers in gaining market share in the supply of residential mortgages.”
In addition to the four major banks, 38 smaller Australian-owned banks, 12 foreign banks, and 60 other ADIs offer residential mortgages.
Small business, small competition
The regulator noted that there was less competition amongst the small and medium enterprise (SME) lending space in which fewer smaller ADIs catered to this market.
“Large banks are likely to have a strong competitive and information advantage in supplying lending products to these businesses through their ability to cross sell or bundle other banking products, particularly payment systems/merchant terminals and transaction accounts.”
Smaller ADIs may also not be able to offer finance to small or medium-sized businesses as this could potentially mean the lender is operating outside of its risk appetite, the regulator wrote.
Only 24 smaller Australian-owned banks, 17 foreign banks, and 42 other ADIs offering products in the SME space.
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