Swan Wants ‘Competitive Force’ to Take on Australia’s Banks

Swan Rejects Intervention to Counter Currency Rise
Australian Treasurer Wayne Swan at the IMF - World Bank Group annual meetings in Washington. Photographer: Andrew Harrer/Bloomberg

Australian credit unions and building societies can be a “strong competitive force” against banks, helping to cut borrowing costs, Treasurer Wayne Swan said in his weekly economic note.

The government wants a “new pillar,” in the industry, Swan said earlier in an interview yesterday with Channel Nine. Commonwealth Bank of Australia, Westpac Banking Corp., Australia & New Zealand Banking Group Ltd., and National Australia Bank Ltd., dubbed the four pillars after a law preventing takeovers among them, accounted for 87 percent of the home lending market in September, up from 76 percent three years ago.

“We know there is more work to be done to build up competition, and we are determined to do that,” Swan wrote in his note yesterday. “I’m also a really big believer in the capacity of our mutual credit unions and building societies to be a strong competitive force in the banking sector.”

Australia’s biggest banks have been criticized for raising borrowing costs by more than the central bank. Swan said his government’s package to encourage competition will be released next month. Opposition Shadow Treasurer Joe Hockey will call for a review of the banking industry today, he said in an interview with the Australian Broadcasting Corp yesterday.

The Greens Party on Nov. 15 introduced draft laws to place restraints on the ability of the big banks to increase mortgage rates. The proposals in the lower house of parliament would give the Australian Prudential Regulatory Authority powers to prevent banks from raising mortgage fees above their funding costs.

‘Silver Bullet’

Finance Minister Penny Wong ruled out regulation and said the government will instead focus on supporting competition, according to the transcript of a Sky News interview.

“We’re not pretending that there’s a silver bullet,” Wong said. “We’re not going to re-introduce regulatory regimes, which historically we know have made things worse for Australian consumers and people trying to get home loans.”

Swan urged borrowers to seek loans from credit unions, building societies and smaller banks, which offer more competitive rates. He said the nation’s biggest banks act in an “arrogant way.”

“The government is determined to see a new pillar in the banking system, particularly based on the mutual sector, particularly based on our credit unions and our building societies,” Swan told Channel Nine yesterday. “They are safe and they’re very competitive.”

Competitive Forces

The government has invested A$16 billion ($15.8 billion) in Triple-A rated residential mortgage-backed securities to support smaller lenders and lower the cost of funding, Swan said in his economic note.

Commonwealth Bank reported on Nov. 15 a first-quarter unaudited cash profit of about A$1.6 billion. Westpac, Australia’s second-largest bank, earlier this month posted second-half profit that almost tripled from a year earlier, while ANZ Bank said a week earlier that earnings in the period surged 69 percent to a record. National Australia, the biggest lender to companies, posted a cash profit gain of 32 percent in the second half.

All four raised their standard variable mortgage rates by more than the Nov. 2 quarter-percentage point move by the central bank.

Australia’s Senate voted last month to hold an inquiry into competition in the banking industry, including the fees they charge.

ANZ Chief Executive Officer Mike Smith said Oct. 31 that any attempt by lawmakers to control banks’ interest rates will take Australia back to an era “long since gone.”

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