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Banking competition ‘not unambiguously positive’: APRA

APRA chair Wayne Byres has flagged the potential downsides to greater competition in the banking sector, making particular reference to risks associated with a “competitive spirit” in the mortgage market.

In an address to the Customer Owned Banking Convention on Monday (11 November), chair of the Australian Prudential Regulation Authority (APRA) Wayne Byres highlighted the challenges associated with balancing competition and financial stability.

Mr Byres conceded that the balancing act may at times involve “trade-offs” whereby some stability objectives may impede competition in the marketplace.

The APRA chair made specific reference to the regulator’s macro-prudential curbs on residential mortgage lending, which he said were designed to stunt credit growth driven by “poor lending standards”.

“[Not] all competition is unambiguously positive,” he said.


“For example, our interventions in housing over the past few years [had] the explicit and unambiguous goal of dampening competitive spirits.

“These were playing out in a manner – through poor lending standards – that was likely to be damaging to the community in the long run.”

However, Mr Byres denied that the regulator has entirely neglected competition in its “zest for stability”, adding that such accusations had overlooked APRA’s work to strengthen composition.

Among the pro-competitive initiatives cited by Mr Byres was APRA’s decision to target housing interventions with respect to investor and interest-only lending “first and foremost at the largest ADIs”, which he said grew the market share of smaller lenders, “notwithstanding the constraints at which everyone chaffed”.

Moreover, in his address to mutual banks, Mr Byres noted the market share rise of the sector, stating that over the decade, mutual ADIs have grown their collective assets by 87 per cent, compared with a 57 per cent rise in the collective assets of the big four banks.

According to the APRA chair, member-owned lenders have benefited from the reputational damage incurred by the major banks. 

“I would contend that in recent times, smaller ADIs have developed some competitive advantages – the most critical of which is a far better reputation among consumers after the royal commission and other revelations of poor customer outcomes,” he said.

“This is contributing to the slow but steady erosion in the dominance of the majors.

“At the same time, the long-term decline in the share of mutual appears to have definitely ceased and, albeit slowly, mutuals are starting to win back market share. For example, the share of housing loan approvals generated by the mutual sector is the highest it has been since the GFC, and broadly double that of a decade ago.”

He added: “There is undoubtedly a real opportunity for the mutual sector to take collective advantage of its favourable perception.”

Mr Byres concluded by encouraging the mutual banking sector to work collaboratively to navigate headwinds, particularly in light of the low-interest rate environment, which threatens to squeeze profit margins  

“Looked at collectively, the mutual sector has $120 billion of assets and would rank as the sixth-largest ADI in Australia – behind only the majors and Macquarie Bank,” he said.

“Given the increasing importance of scale as a means to offset a range of competitive headwinds – including the need to invest in new technology to meet changing consumer demands, boost operational resilience and head off cyber threats – collective initiatives that promote and support the mutual sector as a whole have the potential to generate the scale efficiencies that are needed to genuinely alter the competitive landscape.

“They are not necessarily easy, but they are likely to be essential.”

[Related: Mortgage competition ‘alive and well’, insist big bank CEOs]

Banking competition ‘not unambiguously positive’: APRA
Wayne Byres

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