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Westpac, NAB Challenged as Swan Urges Clients to ‘Shop Around’

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

Australia’s four biggest banks, led by Commonwealth Bank of Australia and Westpac Banking Corp., face mounting competition after Treasurer Wayne Swan urged customers to turn to credit unions and building societies.

“Competition from smaller lenders in the banking sector has to be activated by empowering consumers to shop around,” Swan said yesterday in a statement. “I’d encourage every Australian family to check out the range of products on offer.”

Swan has said he’ll issue proposals this month to reduce the dominance of the four lenders, which also include National Australia Bank Ltd. and Australia & New Zealand Banking Group Ltd. Calls from politicians to rein in the quartet have mounted after some posted record profits and they boosted mortgage rates faster than the central bank raised borrowing costs last month.

“It seems that a left-leaning Federal government is determined to see major banks become less profitable and dominant,” Craig Williams, a Melbourne-based analyst at Citigroup Inc., said in a report today. “It’s hard to get too positive about the outlook for the banking sector in Australia.”

National Australia Bank fell 0.8 percent today in Sydney, while Commonwealth Bank declined 0.5 percent. Westpac slid 0.2 percent and ANZ Bank was little changed.

Many Australians don’t know they can buy financial services from 60 credit unions and building societies, which are institutions owned by their customers, at post offices, according to Swan. He will probably present his proposals, including ways to help them issue more loans, to the Cabinet today and an announcement is likely Dec. 9 or Dec. 10, according to the Melbourne-based Age newspaper.

Cost of Funding

Public debate on competition in financial-services is intensifying as banks and officials contribute to a Senate inquiry. Central Bank Governor Glenn Stevens is due to appear before the committee on Dec. 13.

Westpac, Australia’s second-largest lender, last week published its submission, saying there are currently 179 entities competing to sell banking services.

Chief Executive Officer Gail Kelly called on the government to introduce measures that reduce major banks’ reliance on offshore funds, which has become more expensive following the global financial crisis. The biggest banks have blamed those costs for driving up mortgage prices. Kelly also said a “wide-ranging” inquiry should wait as long as four years, until the effect of new worldwide liquidity and capital rules become clearer.

Tighter Grip

In an interview published Dec. 4 in the Australian Financial Review, Kelly said the only way to reduce mortgage prices is to help banks obtain cheaper sources of funding.

Australia’s four largest banks used the global financial crisis to tighten their grip on the home-loan market as smaller bank struggled to access credit. The major banks, dubbed the “Four Pillars” after a law preventing takeovers among them, account for about 88 percent of the residential home lending market, according to data from the Australian Prudential Regulatory Authority.

Credit unions and building societies argue that the country needs more competition and have asked the government to introduce policies to help them access funding.

In a Nov. 30 submission to the senate inquiry, the Association of Building Societies and Credit Unions asked for the introduction of a flat-fee guarantee of wholesale debt funding for smaller lenders.

The government has invested A$16 billion ($15.7 billion) in Triple-A rated residential mortgage-backed securities to support smaller lenders and lower the cost of funds, Swan said yesterday.

Australia’s largest banks are already poised to face greater competition in other areas.

AMP Ltd., which is buying the Australian and New Zealand units of Axa Asia Pacific Holdings Ltd., plans to use the deal to compete with the wealth-management businesses of the largest banks, AMP Chief Executive Officer Craig Dunn told yesterday’s Inside Business program on the Australian Broadcasting Corp.

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