The Big Four banks should be prevented from taking over any more of their second-tier rivals, according to the head of Australia’s largest independent aggregator.
AFG’s managing director Brett McKeon has called on the government to implement a three-point plan to rapidly restore competition to the mortgage market. Chief amonst the three proposals is a call for a ban on further market consolidation by the Big Four banks.
“The takeover of Bankwest by CBA and St George by Westpac have had seriously damaging consequences on lender competition,” said McKeon. “No further consolidation should be allowed by the Big Four, to allow the second tier banks, perhaps the likes of Bendigo & Adelaide or AMP, the opportunity to organically grow and become a natural competitor, or for two to join together – although the former option is preferable.”
McKeon also called for the government to meet with smaller lenders to discuss future policy initiatives that will stimulate non-major market share, and to draft policies to create a more level playing field in providing access to funding for smaller lenders. One such policy could be revising the terms on which government guarantees on secutritisation are calculated.
“Rather than basing government guarantees on an institution’s credit rating – which gives the upper hand to the majors – they should be based on the quality of the debt within the securitisation.” he commented. “This would still leave smaller lenders at a slight disadvantage, but would lessen the gap and promote better competition.”
McKeon admitted that he had “no problem with the majors doing what’s right for their shareholders”, instead arguing that the government had made mistakes that had allowed a non-competitive environment to prosper.
“The government has a role in promoting competition, and the current measures being bandied about – such as potentially banning exit fees – will just make the situation worse. It needs to engage in a more robust dialogue with smaller lenders and support them to promote effective competition.
One of the criticisms of this government in its first term is that it only superficially engaged with smaller firms – whether in finance, retail or mining,” added McKeon. “It has a chance to improve upon that in its second term, to step back from big business and support smaller companies. After all, it’s from small and medium-sized enterprises that the tier one businesses of the future will come.”
AFG is warning that the mortgage market is ‘stalling’ as its October figures show a stark decrease in the number of mortgages taken out.
The aggregator’s monthly mortgage data for October has revealed that it arranged $2.2m in mortgage in October 2010 – down 17.5% in volume on the same month last year, and 4.3% lower than September’s already ‘subdued’ figures. NSW was the worst affected state, where mortgage sales fell 13.1% month-on-month.
AFG managing director Brett McKeon argued that the reason for the slowdown is simple: the likelihood of interest rate rises.
‘All the data suggests that ordinary Australians are worried about rate rises,” said McKeon “They are in lockdown mode, saving their money instead of spending it, which would be healthier for the economy. The politicians in Canberra are responding to this fear with populist claptrap about inquiries and regulation, but the horse has already bolted and unless something is done it will take half a decade to see proper competition return.”
He dismissed the idea of a commission into banking competition and rate setting, calling it “farcical”
“Everyone knows that the best way to keep rates keen is to promote competition. But by allowing the fifth and sixth largest banks to be taken over by the Big Four, and by structuring the AOFM to benefit only the Big Four, no one has more effectively sabotaged lender competition in Australia than this Government.
“If it goes ahead with a commission, to avoid self-incrimination the Government will have to restrict the terms of its inquiry so much that its findings will be meaningless.”
The AFG data also saw a continued rise in fixed-rate mortgages, presumably as consumer worries over interest rates have escalated, and a fall in the proportion of first-home buyers in the market versus September.