​Non-bank lenders lead growth, 'implicit' support of majors questioned

by 16 Dec 2013
Non-bank lenders have more than doubled the growth rate of banks, the latest statistics show, but industry bodies say competition between the big four is not strong enough.

The latest housing figures showed the number of mortgages sold by banks increased by 0.9 per cent, while those approved by non-bank lenders rose by 2.3 per cent.

The total number of home loan approvals for owner-occupiers rose by 1 per cent in October to 52,305.

While these figures show non-bank lenders are actively grabbing market share, there is evidence competition between the major banks is weak, according to a submission to government by the Customer Owned Banking Association (COBA).

"It is well recognised that the major banks enjoy implicit government support as a consequence of their systemic importance based on size, interconnectedness, and complexity. The IMF has estimated that this funding cost advantage rose from 80 basis points to 120 basis points during the global financial crisis when government support for the banking system was made more explicit,” said the submission.

Market share by the major banks has increased significantly since the House of Representatives Economics Committee’s 2008 report on competition in retail banking, said the submission, the Committee’s report stated that:

“While there is no doubt that the big four [banks] aggressively compete with the other players in the market, including foreign-owned banks, the credit unions, building societies and the non-banking sector, there is some uncertainty as to whether the big four are actively competing with each other."

The submission also highlighted a speech by Parliament in 2011 that claimed there has been “strong evidence of banks signalling their pricing intentions to each other in a bid to undermine competition”.

The submission also called on the upcoming “Son of Wallis” inquiry to examine carefully “the aggregation of financial services providers into financial conglomerates resulting in the emergence of large and diverse financial institutions”.

The submission highlighted the “major banks’ presence and influence” in the inquiry.

“The FSI is headed by former CEO of a major bank (David Murray, CBA), and major bank boards currently include a former head of  Treasury (Ken Henry, NAB), a former deputy chair of ASIC (Jillian Segal, NAB), and a former RBA Governor (Ian Macfarlane, ANZ). Another former head of Treasury was until  recently chair of a major bank (Ted Evans, Westpac). A former deputy secretary of Treasury is currently a policy adviser for a major bank (Jim Murphy, ANZ).”