A fifth pillar? What is needed is oxygen to bring competition to home loan market: John Symond
Competition in the home loan market is being stifled by the lack of wholesale funding available to the smaller, non-bank lenders – the same group who introduced competition in Australia in the early 1990s.
And for consumers to be able to have real choice away from the Big Four banks, more needs to be done by the Federal Government, according to Aussie’s founder and Executive Chairman John Symond.
“Basically I think the single biggest problem in stifling competition today is lack of wholesale funding to the sector who brought on competition,” Mr Symond told the Senate Inquiry into the banking industry in Sydney last month. “It’s the oxygen, there’s no oxygen there.”
“Looking at where we currently stand coming out the other side of the GFC, quite clearly the influence and the ability of the non-bank sector of the industry to compete aggressively has been severely hamstrung, and as you note, primarily through the lack of funding availability to them,” he said.
Mr Symond said the Federal Treasurer’s plans to create a “Fifth Pillar” of banking, comprised of the mutuals and building societies, to challenge the dominance of the big banks would not work.
“It wasn’t the banking sector that brought competition, it wasn’t the mutuals,” he said. “I’m a fan of the mutuals, but to suggest that the mutuals can become the fifth force in banking, quite frankly is a joke.”
“They are small corner stores, they don’t have infrastructure, they don’t have technology, don’t have the clout and reach, and we need the Government to go back to firstly understand where competition came from.”
Mr Symond said the Government needs to support more initiatives to support securitisation, which was introduced in Australia in the early 1990s.
“Securitisation was introduced to benefit mums and dads by funding their home loans, and on the back of what we did RAMS, Wizard and a whole number of other non-banks, non-deposit taking non banks were formed and ultimately in 1997 Commonwealth Bank were the first to drop interest rates by a total of just under three percentage points.”
Mr Symond said it was the non-bank lenders, rather than the mutuals and building societies, which was the catalyst for change and competition to the industry.
“In fact when I stepped into the market in 1992 mutuals, building societies included, banks, all charged about exactly the same high interest rates,” he said.
“The mutuals provided a better service, they were the corner store, but in terms of pricing they were all the same.”
Mr Symond said the Government should look to the Canadian model for solutions to the current lack of competition in the market.