Regulatory reform on banking competition is one of the primary factors driving change in the Australian market. All of the country’s senior bankers have been called before the country’s Senate Economics Committee in relation to three amendments of the country’s 1959 Banking Act.
The proposals include preventing banks from changing variable interest rate charges on mortgages above or below changes to the Reserve Bank of Australia’s discount rate and the banning of some ATM fees and mortgage exit fees.
The reform has created a surge of negative publicity for the country’s big four banks, ANZ, Westpac, NAB and CBA.
NAB’s response has been the most aggressive. It scrapped exit fees on home loans last year and offered to pay the fees for customers of Westpac and CBA who switch to its own mortgage products. It also launched an online, print and outdoor marketing campaign distancing itself from the other banks.
The campaign communicated how NAB had “broken up” with Australia’s big four. The front page of NAB’s website carried the message, “Sorry CommBank, ANZ, WestPac, but it’s over between us”, and linked to a dedicated micro-site called “the break up”.
Funding costs are also weighing heavily on all of Australia’s banks. They are reliant on money raised offshore to fund their lending commitments and are expected to raise between $140bn-$150bn on international wholesale markets this year, a requirement which could rise to $300bn in the next decade according to some analysts’ estimates.
Ratings agency Moody’s is considering a downgrade of the ratings of the big four. It estimates 43% of the leading banks’ liabilities are funded from wholesale funding in international markets.
Currently, the banks are rated at Moody’s second-highest rating of Aa1.
Credit demand is the final issue driving competition for market share in Australia, particularly in its $1.2trn housing market.
CBA chief executive Ralph Norris estimates demand for home loans will continue to be subdued, at around a level of 3% year-on-year growth. This compares unfavourably to 15% annual growth prior to the financial crisis.