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Wayne Byres, David Coleman split on reason for bank rate hikes
Australian Financial Review Sep 13 2017 3:38 PM
James Eyers
The chairman of the parliamentary committee reviewing the major banks, Liberal MP David Coleman, says he's concerned their recent justifications for lifting mortgage interest rates could be misleading and will be investigated by the competition regulator.
In a hearing in Canberra, he called out comments by the heads of the retail banks at Commonwealth Bank, National Australia Bank and Westpac Banking Corp that standard variable rates had risen due to regulatory requirements, suggesting the true motivation was opportunistic and motivated by lifting profits.
"This committee would be very concerned if bank executives are making misleading statements about interest rate movements," Mr Coleman said, indicating the Australian Competition and Consumer Commission will closely scrutinise the justifications using its new powers over mortgage pricing.
But Australian Prudential Regulation Authority chairman Wayne Byres defended the banks, saying that while APRA "has been blamed for all sorts of things", it was difficult for banks to know the impact of their pricing changes on demand for loans.
This was because of competitive dynamics in the mortgage market, and that pricing was being used as a lever to get under the regulator's lending caps. "They wouldn't have taken those steps as and when they did if it wasn't for the regulatory changes," he said.
Nevertheless, Mr Byres said he expected both the ACCC and the Australian Securities and Investments Commission, as the disclosure regulator, "will have a great interest" in bank statements about rate changes. The big four bank CEOs will appear before the Mr Coleman's committee in October.
Other members of the House of Representatives economics committee also raised the heat on APRA's macroprudential policies on Wednesday, questioning whether their limiting of competition were justified. Investor growth caps effectively lock in existing market shares.
Mr Byres said APRA was conscious of the anti-competitive effect of the limits "but at the heart of our actions was concerns about excessive competition manifesting itself in a way that was unhealthy".
He said APRA has been more lenient on smaller institutions, but this was mainly on timing and APRA remains wary of the risks of encouraging lower quality loans to accumulate at the outer edges of the system if it let smaller banks play by a different rule book.
CBA spotlight
The committee also probed APRA on its prudential inquiry into risk culture at the Commonwealth Bank, which was announced after revelations last month that the bank failed to report thousands of suspicious transactions to AUSTRAC.
Mr Byres rejected suggestions by Labor MP Matt Keogh that two of the members of the panel had conflicts of interest which could compromise the investigation.
Mr Keogh asked whether Jillian Broadbent, who is chairman of reinsurer Swiss Re, was conflicted given CBA had a large insurer in CommInsure. But Mr Byres said the two companies don't directly compete against each other. "I don't actually see there is a major conflict there," he said.
Mr Keogh also questioned whether it was appropriate for former APRA chairman John Laker to be on the panel given it would examine APRA's own oversight of risk management at CBA at a time Mr Laker ran the regulator. But Mr Byres said "if issues are identified, I have no doubt to John's integrity - those issues will be called out."
APRA has been monitoring CBA's liquidity and deposit outflows since the AUSTRAC allegations were made public and Mr Byres said they have had a "negligible impact in terms of loss of customers, loss of deposits or any other impact that would make a material difference to the viability of the bank".
Rather, the inquiry is designed to help CBA restore community trust given its own difficulties in doing so. APRA had rejected a proposal by CBA for it to conduct a review of its shortcomings monitored by an independent outsider, a structure it set up in response to the financial planning scandal, because that presupposed CBA knew the answers to what needed fixing, Mr Byres said.
"The idea is to provide a report that gives transparency. If the Commonwealth Bank - and I'll take them at their word – are willing to cooperate and accept the findings and deal with them as they are, hopefully it does provide the comfort that the issues have been investigated and wherever needed, there is rectification happening," Mr Byres said.
"We sit here with largest bank in country with its reputation badly damaged. That's unhealthy for the bank, that's unhealthy for the banking system and it's unhealthy for the country and broader community...
"We have talked more generally about the importance that banks are not just well capitalised, but people understand and trust that they are well governed and prudently managed. I think at the heart of all these issues that emerged, the community does have concerns, and there are question marks, about the extent of that governance and good management.
"Part of this is trying to provide a better picture of what is real and what is perception, and to the extent there are genuine shortcomings there, that they are going to be addressed."