The Customer Owned Banking Association (COBA) – the industry body for credit unions, building societies, mutual banks and friendly societies – has today called on the Turnbull Government to allocate funds in the May Budget to bring forward a planned Productivity Commission review of banking competition.
“There is an urgent need for well-considered measures to promote competition in banking,” COBA CEO Mark Degotardi said.
“In its response to the 2014 Financial System Inquiry (FSI), the Government agreed to implement periodic reviews of competition in the financial sector.
“COBA requests allocation of funding to enable the Productivity Commission to complete the first such review by the end of 2017. The Government’s current commitment is to commence, but not complete, such a review in 2017. Given the state of competition in the banking market, we can’t afford to wait.
“The case for an accelerated timetable for the Productivity Commission review is underlined by the House Economics Committee’s November 2016 report that was highly critical of the state of competition in the banking market.”
The House Economics Committee report found:
- Australia’s banking sector is an oligopoly
- Australia’s four major banks have significant pricing power, higher than average returns on equity and large market shares
A lack of competition in Australia’s banking sector has significant adverse consequences for the Australian economy and consumers. It:
o creates issues around banks being perceived as too-big-to-fail (TBTF) (such as moral hazard)
o reduces incentives for the major banks to innovate and invest in new infrastructure, and
o can allow banks to use their pricing power to extract excess profits from consumers.
“The enduring solution to concerns about the banking market is action to promote sustainable competition so that poor conduct is swiftly punished by loss of market share.
“An expert review to identify the barriers to a more competitive market and measures to overcome those barriers is sorely needed,” Degotardi said
“COBA’s recently commissioned Deloitte Access Economics (DAE) report on implementation of key FSI recommendations shows that significant work remains unfinished.
“We strongly endorse DAE’s suggestion that the Productivity Commission review should consider whether regulators’ rules and procedures are creating inappropriate barriers to competition and whether there is appropriate regard to other business models, including the customer owned model.”
The DAE report mentions two examples of regulator decision-making affecting competition:
- APRA’s approach to regulatory capital instruments for customer owned banking institutions, and
- APRA’s application of the cap on investor lending growth.
COBA’s pre-budget submission lodged with Treasury urges the Government to announce the following measures in the 2017-18 Budget:
1. Funding to bring forward a review by the Productivity Commission of competition in the banking market, to report by the end of 2017.
2. A company tax rate for customer-owned banking institutions that matches the effective tax rate of major banks of between 22% and 25%.
3. Expand GST RITC item 16 ‘credit union services’ to accommodate mutual building societies and mutual banks that are former mutual building societies.
“These measures, along with implementation of key FSI recommendations, will help deliver a more competitive banking market for the benefit of consumers and the wider economy.”
