ACCC urged to break big 4 dominance

Earlier this week, Treasurer Josh Frydenberg announced that the Australian Competition and Consumer Commission (ACCC) has been commissioned to conduct a ‘Home Loan Price Inquiry’.

The inquiry will review pricing behaviour from 1 January 2019 to examine:

• the differences between advertised rates and the prices actually charged or paid;
• the differences between rates paid by existing customers and those paid by new customers (front and back-book pricing behaviour);
• pricing decisions in response to changes to the official cash rate; and
• factors preventing customers from switching to cheaper home loans.

The inquiry has been launched amid criticism of the banks from Mr Frydenberg for their failure to pass on the RBA's full 25 basis-point cuts to the cash rate.

The big four banks have welcomed the new inquiry, with Westpac CEO Brian Hartzer claiming that it would present the bank with an opportunity to “put the facts on the table around mortgage pricing”.

Bendigo and Adelaide Bank has also welcomed the ACCC’s inquiry, noting in a statement to Mortgage Business: “We are ready to assist the ACCC and demonstrate how we always aim to strike a fair balance for the bank’s stakeholders in any decision we make.”

However, the new inquiry has sparked calls for a deeper investigation into the market power of the major banks.

In a statement to Mortgage Business, Suncorp banking and wealth CEO David Carter called on policy makers to address risks associated with the competitive advantages of the big four banks.   

“The ongoing advantage given to majors is constraining further competition for regional banks and limiting choice for the Australian community,” he told Mortgage Business.  

“We’d like to see the ACCC and government look at the current ‘too big to fail’ benefit and risk weight settings bestowed on the big four that creates a funding advantage for the big four over regional banks.”

The Customer Owned Banking Association (COBA) echoed Mr Carter's sentiment, adding that the major banks’ market dominance has inhibited borrowers from reaping the "unambiguous" benefits of product switching.

“This inquiry is an opportunity to deliver a more competitive banking sector by examining what is holding consumers back from switching bank providers,” COBA director of strategy Sally Mackenzie said.

“Empowering consumers to switch their banking and to shop around is an unambiguously good thing.

“A more competitive market will make all players care more about their customers.”

Ms Mackenzie claimed that barriers preventing consumers from switching have made it “challenging for smaller banks to win market share from the big four banks”.

She continued: “Consumers can benefit personally by shopping around, and the market will function more effectively if there is more intense competition for borrowers.”

Ms Mackenzie urged regulators to ensure that prospective reforms don’t further restrain the competitiveness of smaller players.

“Policy makers need to [carefully] consider regulatory interventions because smaller players are already subject to a disproportionately high regulatory burden,” she said.

The ACCC is expected to hand down a preliminary report by 30 March 2020, with a final report due by 30 September 2020.

[Related: Government launches new mortgage pricing inquiry]