ACCC chief Rod Sims urges banking review
The Australian 12:00am August 8, 2016
Michael Roddan
Australian Competition & Consumer Commission chairman Rod Sims says he is keenly awaiting a Productivity Commission review of competition in the banking sector following the community anger last week sparked by lenders withholding some of the latest Reserve Bank rate cut.
While the government last week called bank chiefs to front Parliament’s economics committee once a year to face a grilling, the Coalition is yet to task the Productivity Commission with a review of competition in the financial system, an intention which it flagged in response to David Murray’s Financial System Inquiry.
Separately, the Productivity Commission last week said it would be taking a closer look at the growing power of bank-owned superannuation funds as part of a three-stage review into the $2 trillion industry.
“The big banks have increased their market share in recent years and they’re well known to be making quite high margins,” Mr Sims told The Australian.
“I look forward to the productivity commission’s inquiry to find out how are they able to keep doing that and what the barriers are for others trying to challenge them.
“It’s fair to say that, even though you’ve got four main players, they do have about 85 to 90 per cent of the market share and the competition between them is not as intense as you’d expect.”
While the big four banks held back between 11 and 15 basis points of the RBA rate cut, second tier lenders such as Bendigo and Adelaide Bank, Bank of Queensland, Suncorp, ING and ME also withheld some of the cut, passing up the chance to differentiate themselves from the major lenders amid intense political pressure in the sector.
Stewart Oldfield, principal of Field Research, said competition between the banks differed, depending on the product.
“With some products there is a reasonably high level of competition. Mortgages might be an example of that. With other products, consumers are being taken advantage of, and foreign exchange payments are an example of that,” he said.
Overcoming consumer apathy is thought to be the most direct way of improving competition in the sector. Most customers don’t realise, or don’t care to know, that they don’t need to use their own bank for all financial services products. “With foreign exchange or wealth management products the banks aren’t the most competitive source of those products,” Mr Oldfield said.
While Opposition senator Sam Dastyari has said that “you are more likely to change your spouse than your bank in Australia”, promoting portability of transaction accounts between lenders is seen as an easier way to inject competition in the sector.
Banks are obliged to inform customers of all their direct debit arrangements on request but, typically, bank staff aren’t well trained or aren’t aware of their obligations to provide the information, which can be taken to another lender to assist the changing of banks.
Lenders have also argued having a unique transaction account number that can be ported between banks is too expensive to implement.
Mr Sims said while the broadband market was heavily concentrated, with Telstra, Optus, TPG and M2 controlling about 90 per cent of the market, they were far more vigorous in competition than the big four banks.
“They have different value propositions that they’re putting to consumers and consumers get a good range of choice from those four, whereas the banks tend to offer similar products without a similar range of choice,” he said.
One solution put forward is to task the Australian Office of Financial Management, which borrows for the government, to allocate more capital towards second-tier lenders, which would lower the cost of funds for the smaller lenders.
During the GFC the securitisation market froze and the AOFM bought heavily into lenders’ mortgage bonds for several years before the temporary mandate ceased in 2013.
The market has recently worsened for the securitisation market as wholesale funding costs have risen for all lenders, which means the price increases have been passed on to smaller non-banks.