A non-bank lender has not only accused the federal government of showing favouritism to the country’s banks, but has warned the repercussions of the preferential treatment could “kill off competition” in the home lending market for a generation to come.
According to Firstmac managing director Kim Cannon, the problem was introduced with the launch of the Reserve Bank of Australia’s $200bn Term Funding Facility (TFF).
The “flawed program” was unveiled by the federal government in March as the COVID-19 crisis began to trigger real panic within Australia, in a bid to bolster the banks who were seeing declining profits due to falling interest rates; the TFF was created to provide “cheap money” to the banks to subsidise their lending operations – a move, Cannon argues, that was a disaster in the making for Australian borrowers.
“By giving cut-price money to the banks alone, the government is subsidising them to increase their market share at precisely the time when it should be protecting competition for consumers,” he explained.
“If this continues, we are going to see a repeat of the GFC where the banks emerge completely dominant at the end of the crisis, and are able to charge what they want and do whatever they want, with few challengers strong enough to offer a real alternative.”
Under the TFF scheme, large ADIs can borrow money from the government at a rate of 0.25% while competitors must continue to borrow on international markets at 1.35% or more.
As Cannon sees it, this has enabled the big banks to offer “artificially-low” two to three year fixed rates, thus stealing away their smaller competitors’ customers; it is estimated that 70% of recent refinances have been onto just such subsidised fixed-rate loans.
“This program threatens to derail the government’s entire strategy of fostering competition in lending,” Cannon said.
“The only way to fix it is to re-establish a level playing field, either through extending it to other lenders or by offering equivalent subsidised funding through another mechanism.”
Cannon would like to see the government open the TFF program to non-bank lenders and expand access for smaller ADIs including fintechs, who are currently limited to a “token sum”.
“This will ensure that borrowers still get access to subsidised loans to stimulate the economy, while avoiding the completely unnecessary collapse of long-term competition in the market and all of the problems that come with that," he concluded.