The major banks, as the primary importers of overseas capital funding, are creating a concentration risk issue, according to Bendigo and Adelaide Bank.
Speaking to MortgageBusiness, Bendigo and Adelaide Bank chief executive Mike Hirst said Australia’s reliance on imported capital is dominated by the big four lenders.
“Australia is always relying on importing capital to assist with economic growth,” Mr Hirst said.
“Unfortunately, as it has turned out, that has predominantly been done by the balance sheets of the four big banks,” he said, adding that most companies will not approach offshore markets without the help of a major lender.
“It’s a bit of a concentration risk issue for the economy when you’ve only got four balance sheets supporting all of that borrowing.”
Mr Hirst raised the issue of superannuation – now one of the largest savings pools in the world at $1.7 trillion – as a possible source of funding.
“Certainly the fixed interest market in Australia is predominantly supported by the superannuation funds,” he said. “The RMBS market probably equally so.”
The superannuation funds will say they are supporting it to the extent that there are assets available for them to buy, Mr Hirst said.
“The banks and other companies will say the superfunds are not supporting it anywhere near the extent to where they should because of the preponderance of investments flowing into equities as an asset class,” he said.
As the Australian population ages and transitions from accumulation to retirement, the financial system faces increasing capital requirement pressures.
In its submission to the Financial System Inquiry – a separate submission from the collective regional bank submission – Bendigo and Adelaide Bank recommends an alternative to previous “inadequate” home equity release mechanisms.
“The banking industry has created a limited range of debt-driven equity release products,” the submission said.
“One alternative is a unique debt-driven equity release mechanism that enables eligible senior home owners to sell a fixed proportion of the future sales proceeds of their home, in exchange for an up-front cash amount,” it said.
The submission notes that the mechanism would be “fundamentally different to reverse mortgages” in that it involves a one-off sale, “rather than a loan with compounding interest rates that erode the owner’s equity in the home over time”.