Although majors have been hit by bank levy, non-majors will struggle to take advantage
Although majors have been hit by bank levy, non-majors will struggle to take advantage
Brokers shouldn’t expect sharper rates from the non-majors despite the introduction of the recent bank levy.
Although the Federal Budget’s 0.06% levy on Australia’s major banks was welcomed by many as levelling the playing field, this week’s ratings downgrade by S&P represented a ‘backward step’ for competition, according to ME bank CEO Jamie McPhee.
S&P downgraded the credit ratings of 23 banks, including ME, making it more expensive for these banks to borrow and consequently lend as mortgages. The majors were not downgraded, which McPhee attributed to their implicit guarantee by the banks:
“The current environment does not provide for ‘competitive neutrality’, which is to the detriment of consumers. This situation will remain until both the gap in capital requirements is further reduced and the cost of funding advantage currently being enjoyed by the major banks due to their ‘too big to fail’ status is removed”.
Why non-majors may not lower rates
Even if the majors passed on the bank levy in mortgage rates they would still enjoy a 5-12bp advantage over the non-majors, according to Digital Finance Analytics principal Martin North.
“Everyone else – apart from the non-banks – have a significant competitive disadvantage” North told MPA “Whether the impost of a bank tax is a good way to deal with that structural competitive disadvantage, I have my doubts.” Like McPhee, North suggests the continued raising of capital requirements for majors – something currently being considered by APRA – would better improve competition.
Other considerations will deter the non-majors from lowering interest rates to compete, North claims: “if the big four reprice their mortgages I’m pretty sure the regionals will follow anyway because they need to do margin repair on their books also.”
The Business Council of Co-operatives and Mutuals has announced a marketing drive off the back of the bank levy, however, encouraging consumers to ‘#switchdontbitch’. According to Melina Morrison, CEO of the Council, “It is cheeky for the banks to cry poor. Switching banks is the best way for consumers to make it clear that they are not walking ATMs for the big banks.”
Brokers shouldn’t expect sharper rates from the non-majors despite the introduction of the recent bank levy.
Although the Federal Budget’s 0.06% levy on Australia’s major banks was welcomed by many as levelling the playing field, this week’s ratings downgrade by S&P represented a ‘backward step’ for competition, according to ME bank CEO Jamie McPhee.
S&P downgraded the credit ratings of 23 banks, including ME, making it more expensive for these banks to borrow and consequently lend as mortgages. The majors were not downgraded, which McPhee attributed to their implicit guarantee by the banks:
“The current environment does not provide for ‘competitive neutrality’, which is to the detriment of consumers. This situation will remain until both the gap in capital requirements is further reduced and the cost of funding advantage currently being enjoyed by the major banks due to their ‘too big to fail’ status is removed”.
Why non-majors may not lower rates
Even if the majors passed on the bank levy in mortgage rates they would still enjoy a 5-12bp advantage over the non-majors, according to Digital Finance Analytics principal Martin North.
“Everyone else – apart from the non-banks – have a significant competitive disadvantage” North told MPA “Whether the impost of a bank tax is a good way to deal with that structural competitive disadvantage, I have my doubts.” Like McPhee, North suggests the continued raising of capital requirements for majors – something currently being considered by APRA – would better improve competition.
Other considerations will deter the non-majors from lowering interest rates to compete, North claims: “if the big four reprice their mortgages I’m pretty sure the regionals will follow anyway because they need to do margin repair on their books also.”
The Business Council of Co-operatives and Mutuals has announced a marketing drive off the back of the bank levy, however, encouraging consumers to ‘#switchdontbitch’. According to Melina Morrison, CEO of the Council, “It is cheeky for the banks to cry poor. Switching banks is the best way for consumers to make it clear that they are not walking ATMs for the big banks.”
