Red tape choking small-bank lending: BOQ

In response to questions on notice from the House of Representatives standing committee on economics, Bank of Queensland (BOQ) has suggested a slew of regulatory changes, in the interests of boosting the competitive power of smaller and regional banks against the major players.

The answers have followed the appearance of BOQ chief executive George Frazis before the committee in July, when he argued for certain changes to help smaller banks – including allowing digital signatures, blocking mergers with the big four and easing requirements for fintechs.

In its newly published written response to the committee, BOQ stated a more level playing field between the major banks and their rivals would “allow for smaller banks to provide Australians with cheaper, quicker access to credit, aiding Australia’s recovery from the COVID crisis”.

The government should also allow lenience for smaller banks to implement reforms, BOQ said, stating that its non-major peers often “struggle to keep [up] with the fast pace of regulatory change”.

The government’s plans to scrap responsible lending laws was outlined as a positive first step for boosting small banks.

According to BOQ, the proposed reforms would streamline the loan application process and collection of customer information, and simplify the framework, by no longer requiring banks to deal with multiple regulators on the issue (instead APRA would be the sole watchdog).

“BOQ views the reforms as a means of ensuring the efficient flow of credit to assist the economy from the effects of COVID-19,” the document stated.

Mr Frazis has previously argued the reforms would simplify the lending processes for retail and small-business customers.

BOQ also suggested a number of other reforms, which it also stated would assist with the digitisation of Australia’s economy. The recommended changes were:

• Allowing banks to access customer data with the Australian Taxation Office, with customer’s consent, to verify a loan applicant’s income
• The introduction of legislation to support electronic signing of documents and the hosting of virtual annual general meetings by corporations
• The digital delivery of documents under the National Consumer Credit Code
• Removal of the obligation for banks to publish changes to product terms and conditions in newspapers
• The phasing out of cheques as a payment method

The government passed legislation last week extending the relief which allows digital signatures to be used on documents until 31 March 2022. It also signalled plans to introduce permanent reforms later in the year.

Similar to BOQ, Beyond Bank explained the impact of digital signatures in a recently published written response to the committee, stating the use of e-signatures on mortgage documents would reduce the processing time by up to nine days.

“This would improve the customer experience through reduced processing time and therefore the bank would be very supportive of the implementation of e-signatures on documents,” Beyond Bank wrote.

Australian Banking Association CEO Anna Bligh previously told the committee that in-person signing could add days to an approval process and “it’s a tool that no one needs or wants”.

Among the regulatory burdens, BOQ listed risk weighted assets and covered bonds as further hurdles.

Increase covered bonds cap, bank tells government

Looking at covered bonds, BOQ stated that increasing the amount of funding banks could access from 8 per cent to 15 per cent of their Australian assets would allow non-major players to raise funds at a lower cost.

It stated the change would reduce average funding costs across banks’ entire wholesale funding base by roughly four basis points and it would provide a more reliable source of funding.

“By increasing the covered bonds cap for smaller banks, BOQ would be on a more level playing field with the major banks, by neutralising some of the funding cost benefits that [they] receive due to the implicit government guarantee, and [we] could offer more competitive pricing to our customers,” the bank stated.

The government would need to amend the Banking Amendment (Covered Bonds) Act 2011 (Cth) to implement a cap increase.

According to BOQ, it understands APRA is not opposed to the proposed reform.

BOQ also flagged that it has engaged with the prudential regulator on risk-weighted assets – discussing the amount of capital it is required to hold for lending on its books.

[Related: New banks must have money-maker: APRA]