The head of an Australian regional bank has stressed that the mortgage market is in urgent need of reform if Australians are to benefit from competition.
Speaking at the Bank of Queensland annual general meeting yesterday, acting chief executive Jon Sutton spoke plainly about the “completely inequitable” regulatory regime for mortgage risk weightings that requires smaller banks to hold significantly larger amounts of capital against home loans than the majors are required to.
“What this means is if you or I walked into a major bank branch and asked for a home loan, they would have to put aside on average around $1.50 for every $100 they lend,” he said.
“If BOQ lent you the same $100, we would have to set aside more than double that amount for the same customer, with the same risk profile, purchasing exactly the same property.
“Clearly this gives the major banks huge advantages over the rest of the market.”
While Mr Sutton noted that the argument for capital reform does appear to be gaining traction with the Financial System Inquiry, he fears that the implementation of any regulatory changes could be years away.
“We would like to see action taken quickly to address this issue, before the dominance of the big four is further entrenched,” he said.
“If [further entrenchment] happens, Australian consumers will ultimately be the losers.”
Recent commentary from domestic and international regulators suggests the internal ratings models being used by advanced banks, such as the majors and
Macquarie, are not reliable and certainly not comparable across banks, Mr Sutton said.
Internal ratings in use at the major banks since the introduction of Basel II in 2008 have resulted in a significant increase in the proportion of lending being allocated to housing, he added.
“This is hardly surprising when you hear about just how much the major banks have been able to reduce their risk weightings and leverage their capital,” Mr Sutton said.