The submission – a collective effort by Suncorp Bank, ME Bank, Bank of Queensland (BOQ) and Bendigo and Adelaide Bank – notes that Basel II may have contributed to the re-direction of bank capital into the higher return/lower risk retail banking market for home lending and away from business lending.
According to a BOQ spokesperson, the submission makes recommendations that could narrow the competitive gap the majors currently enjoy, injecting greater competition into the Australian mortgage market.
“We believe that levelling the playing field would benefit consumers by introducing more competition into the housing lending market and support the small business sector through reallocation of capital,” the submission stated.
The BOQ spokesperson also told MortgageBusiness that the Australian banking system’s current bias towards housing lending – which has increased since the global financial crisis as a result of regulatory anomalies that provide significant funding and capital advantages to the major banks – risks misallocation of resources, which has ramifications for the overall health of the banking system.
“Our submission to the Financial System Inquiry notes that regional banks have increased their share of lending to the business sector since the GFC while the majors have decreased their share of lending,” a BOQ spokesperson said.
The regional banks’ submission points out that the rest of the banking sector competes hard for housing lending despite the regulatory anomalies that provide the major banks with significant funding and capital advantages.
It also warns that a banking system bias in housing lending may increase systemic risk to the Australian financial system as bank lending fuels rapid asset price increases.
“We have made recommendations that we believe would result in a more balanced allocation of capital and this would support Australia’s economic growth over the longer term,” the spokesperson said.