In his address to shareholders at MyState Bank’s annual general meeting (AGM), chairman Miles Hampton claimed that regulatory conditions have inhibited the competitive ambitions of smaller lenders and paved the way for growth in the non-bank or “shadow banking sector”.
Mr Hampton made reference to the Productivity Commission’s review into competition in the Australian financial system.
In its final report, the PC said that “larger financial institutions have the ability to exercise market power over their competitors and consumers” and stated that “layers of public policy and regulatory requirements support larger incumbents”.
Mr Hampton called into question the contribution that such conditions has had in expanding in the non-bank sector’s market share and urged government and regulators to consider such changes to the competitive dynamics of the lending environment.
“A recent estimate suggested the shadow banking sector has been growing at four to five times the banking sector over the recent period,” Mr Hampton said.
“There is clear evidence that the constraints imposed on banks through regulation are paving the way for this growth.
“The question needs to be asked, is it sensible that regulation skew the overall financial services sector in such a manner?”
Mr Hampton’s remarks follow comments from the CEO of Bank of Queensland, Jon Sutton, who questioned the compliance practices of non-bank lenders, claiming that it is unclear whether such credit providers are fully complying with regulatory standards.
“There is a lot of pent-up demand heading towards non-bank lenders. They have a role to play in the financial community,” Mr Sutton said.
“The last thing you want to see is large parts of the community unbanked.
“[Whether] they are subject to the same scrutiny, regulation and responsible lending, even though they do hold a credit licence, is an open question.”
However, in response to such claims, non-bank lender Firstmac’s managing director, Kim Cannon, accused some ADIs of “blaming their slow growth” on the credit practices of non-banks.
Mr Cannon added that Firstmac has sought to increase its market share by improving its product and service offering.
“Some banks and commentators continue to talk about non-bank lenders as if we are basically competing for the scraps at the lower end of the market using less stringent credit standards, but the truth is that Firstmac is competing with the banks for prime loans and beating them,” Mr Cannon said.
Further, CEO of Liberty Financial James Boyle has weighed in on the debate, acknowledging that the lender has benefitted from escaping prudential regulations imposed on banks but stressed that it was bound by the same responsible lending obligations.
When asked about the Reserve Bank of Australia’s recent suggestion that the rise in non-bank market share could “increase stability risks”, Mr Boyle told Mortgage Business: “We are all bound by the same responsible lending standards; banks and non-banks alike are required to conduct themselves in a way to demonstrate that they have understood the customer’s financial objectives and that they’re mindful of that in providing them with a contract.
“In terms of the systemic risk, although we have enjoyed growth over the last couple of years, and our cohorts have as well, in the bigger picture, we’re still a small part of the overall market — less than 10 per cent.
“I think it’s a very good thing that non-banks are able to provide alternatives to consumers who are not finding those solutions from banks at the moment.”
Charbel Kadib is the news editor on the mortgages titles at Momentum Media.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.