‘Synchronised’ bank behaviour thwarting competition: ACCC

Chairman of the Australian Competition and Consumer Commission (ACCC) Rod Sims has compared the mortgage pricing behaviour of the big four banks to “synchronised swimming”, claiming that it has found that lenders have a “shared interest in avoiding the disruption of mutually beneficial pricing outcomes”.

The ACCC recently released a report following its Residential Mortgage Price Inquiry, which monitored the prices charged by the Commonwealth Bank, ANZ, NAB, Westpac, and Macquarie Bank.

Mr Sims noted that internal information obtained by the competition watchdog discovered “less than vigorous price competition” between the lenders, particularly the big four banks.

“[The banks’] behaviour more resembles synchronised swimming than it does vigorous competition,” he said.

“What we found is that the pricing behaviour of the Inquiry Banks appears more consistent with ‘accommodating’ a shared interest in avoiding the disruption of mutually beneficial pricing outcomes, rather than vying for market share by offering the lowest interest rates.”

The ACCC chairman claimed that the big four banks have “largely focused on each other” when determining headline interest rates and discount variable rates on home loans, claiming that other lenders “do not appear to have much bearing on interest rate decisions” for the major banks.

Mr Sims also alleged that the five banks reviewed by the ACCC have “not sought to compete by offering lowest headline variable interest rates to borrowers”, and that banks “usually move their interest rates at the same time”.

The chairman pointed to actions taken by two of the big four banks in late 2016 and early 2017, whereby they reduced their own discounts and “sought to trigger reduced discounts by rivals”, despite the potential for the decision to be costly for them if rival banks did not follow suit.

Moreover, Mr Sims noted that after reviewing internal communications from the banks, the ACCC had observed references to “encouraging rational market conduct”, “maintaining orderly market conduct”, and maintaining “industry conduct”, as well as references to have interest rates that are “mid-ranking”, and to the need not to “lead the market down”.

Inefficient discounting process

Mr Sims also noted that borrowers struggle to determine the discount they may be eligible for when applying for a mortgage.

The ACCC chairman called for increased discount disclosure, claiming that discount information may only be known to borrowers “deep in the application process”, and in some cases may require borrowers to lodge several loan applications before obtaining the most competitive discount

“[Discretionary] discounts may only be applied and known deep in the application process, and borrowers may even be required to lodge a loan application to confirm the discretionary discount available to them,” Mr Sims continued.

“Borrowers essentially need to go through the time-consuming process of lodging an application with multiple lenders in order to make an informed decision.

“These requirements increase the time and effort associated with obtaining accurate interest rate offers, making it difficult for borrowers to determine the range of effective interest rates available to them.”

[Related: ACCC releases mortgage pricing report]