ANZ is pleased to provide a submission to the Senate Economics Committee Inquiry into Competition in the Australian banking sector.
In our assessment, competition in the Australian banking sector has changed in nature over the last three years. The number of lenders has reduced as securitisation markets have closed, although there has been no meaningful reduction in the range of lending products available to borrowers. Conversely, competition for deposits has intensified as banks and other lenders have sought to improve the proportion of their funding from core deposit sources.
While we have seen some concentration in the market, this has not reversed the long-term downward trend for interest rate margins. During the GFC margins have fluctuated in a small range just over 2 per cent above lenders’ funding costs. The market has remained competitive and held margins at around historically low levels.
The RBA cash rate has an increasingly loose connection with banks’ cost of funds and hence lending rates. The out of cycle rate rises ANZ has made since January 2008 reflect a pass through of our increased funding costs. This has been caused by increases in the major components of bank funding, including:
• Greater competition for customer deposits which is increasing the cost of deposits (and depositors are benefiting from higher returns on their savings);
• An increase in wholesale funding costs due to a repricing of risk on wholesale debt markets; and
• A change in the funding mix towards longer-term wholesale debt and deposits as more stable sources of funding.
It is important for the long term health of the Australian economy that lending generates adequate return on the capital employed in the industry. Without adequate returns, lenders would be unable to attract the capital required to support the growth in credit required to finance economic growth.
On fees and charges, bank customers have also benefited from changes in industry practice. ‘Direct charging’ reforms to foreign ATM fees, driven by the RBA, have made the fee for using another bank’s ATM transparent and had a marked effect on consumer behaviour. The RBA estimated that consumers have saved around $120 million in the first year of implementation of the reform. Exit fees on loans are now covered by the Unfair Contract Terms legislation. ASIC has recently issued guidance on how that legislation applies to both loan establishment and loan exit fees. In addition, ANZ has recently removed its Deferred Establishment Fee from variable rate mortgages.