Australia moves to curb banks' dominance

Australian PM Julia Gillard and Treasurer Wayne Swan. Swan wants Australians to 'get a fair go' when dealing with the four main banks. Photo / Getty Images

Australia plans to bolster credit unions and ban fees for mortgage-switching homeowners, as the Government responds to public pressure to reduce the dominance of the nation's four biggest lenders.

The changes are aimed at boosting competition, keeping interest rates lower over time and ensuring that "Australians get a fair go," Treasurer Wayne Swan said.

A "new pillar" would be built in the banking system by supporting credit unions and building societies that have lost market share since the financial crisis, Swan said. Australia would scrap exit fees on new home loans from July, allow more flexibility in changing lenders, and expand the powers of the nation's competition regulator.

Commonwealth Bank of Australia, Westpac Banking Corp, National Australia Bank and Australia & New Zealand Banking Group control more than 80 per cent of the home-loan market.

Swan, whose Government has no outright majority in Parliament, is seeking to soothe a public angered by mortgage-rate increases last month that went beyond the central bank's benchmark increase, even after banks reported record profits.

"The first aspect is to empower consumers, to give them the capacity to shop around, but also to help smaller lenders compete with the bigger banks and to ensure that credit flows to Australian families and Australian business," Swan said.

Australia's biggest banks already face sluggish credit growth, a worldwide overhaul of banking regulations, more onerous capital requirements, and more expensive funding on debt markets. The country's main banks are dubbed the "four pillars" after a law preventing takeovers among them.

The Government said it intended to give the Australian Competition and Consumer Commission (ACCC) the power to act against banks if they sent price signals to each other to keep their interest rates higher than they otherwise would be.

"The ACCC has advised they do believe there have been instances in banking of price signalling," Swan said.

"The only responsible thing to do is to move in this direction and give the ACCC the powers it requires."

Australia would make a further A$4 billion ($5.2 billion) investment to support the residential mortgage-backed securities market that many of the nation's smaller lenders rely on to make cheaper loans.

The Government also wanted to allow all banks, credit unions and building societies to issue covered bonds to widen access to cheaper, more stable funding, the Treasurer said. The Government would release a draft amendment to banking laws in 2011.

"Swan needs to be seen to be doing something to tackle the four big banks," said Frank Zumbo, competition lecturer at the Australian School of Business in Sydney. "While credit unions and building societies are an alternative, they have a long way to go to put a dent in the market power of the four big banks."

Banks accounted for 91 per cent of new housing loans in September, according to the Australian Bureau of Statistics. That's up from 81 per cent in the same month three years ago, before the peak of the global financial crisis.

The four biggest banks control almost 90 per cent of residential mortgages sold by all banks, and write 83 per cent of all loans, according to October data from the Australian Prudential Regulatory Authority.

Commonwealth Bank, the largest bank in Australia, called for caution in recommending additional regulatory changes, saying the industry was already competitive.

Chief executive Ralph Norris said that the size of bank profits was often taken out of context from the total assets needed to deliver such a return.

THE BIG FOUR

* Commonwealth Bank of Australia, operates ASB Bank in New Zealand.
* National Australia Bank, operates Bank of New Zealand (BNZ).
* Australia & New Zealand Banking Group, operates ANZ National Bank in New Zealand.
* Westpac Banking Corp, operates Westpac New Zealand.

- BLOOMBERG

GOVERNOR FRONTS UP TO INQUIRY

Reserve Bank Governor Glenn Stevens believes the banking sector is more competitive than it was in the mid-1990s, but won't say whether bank customers are being ripped off.

Stevens was the first witness to face the Senate inquiry into banking competition that kicked off in Sydney yesterday and will be conducted around Australia in coming weeks.

The inquiry came just 24 hours after Treasurer Wayne Swan announced a series of measures to try to increase competition.

Stevens told the inquiry the banking market was a good deal more competitive than in the mid-1990s and borrowers had access to a much larger range of products.

"The overall availability of finance to purchase housing in particular seems to be adequate," he said.

Attacks on the behaviour of major banks intensified in November after they jacked up mortgage rates by a far greater margin than the official move by the central bank because of funding costs.

Asked whether Australians were justified to feel ripped off by the major banks, Stevens said it was not his job to comment on how people should feel, nor to defend or attack the major banks.

He said information was readily available on banks' rising funding costs.

Swan's banking reforms would provide more information to consumers about the mortgage they would potentially take on, which Stevens said would benefit competition, but he refused further comment on the Government's measures.

- AAP