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

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.

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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.


See also: ING defending its turf in