CEO of the Customer Owned Banking Association (COBA) Michael Lawrence has urged the federal government to reconsider its approach to banking reform in light of record-low interest rates.
Last week, the Reserve Bank of Australia (RBA) lowered the official cash rate by 25 bps from 0.75 per cent to a historic low of 0.5 per cent – marking the fourth cut since June 2019 when the easing cycle commenced.
Pointing to analyses from the Australian Prudential Regulation Authority (APRA), Mr Lawrence said the low rate environment would impede competition in the marketplace, with smaller lenders disproportionately burdened by margin pressures.
“Very low interests hurt savers and banking competition,” he said.
“As the banking regulator APRA has warned, the worsening margin squeeze caused by very low rates hits smaller banks harder than the major banks.
“This is due to our reliance on deposit funding, which is derived from the hard-earned savings of our customers.
The margin squeeze reduces our capacity to apply competitive pressure. The very low rate environment makes it tougher to balance the needs of our savers and borrowers.”
Mr Lawrence welcomed the federal government’s recent commitment to provide fiscal stimulus to lighten the RBA’s monetary policy burden but added that the government should also consider “phasing and targeting” the “enormous wave of regulatory change” in the banking sector.
“Our members, who would rather focus on customer service, are managing relentlessly rising regulatory change and complexity,” he said.
“We are seeing a perfect storm as reforms from the royal commission converge with changes to APRA’s prudential regulatory framework.”
The government’s agenda of banking reforms – administered through APRA, ASIC, and the ACCC — includes the extension of the Financial Accountability Regime, new breach reporting obligations, the Consumer Data Right (CDR), and new design and distribution obligations.
“Each new regulatory compliance deadline diverts resources from strategic priorities such as responding to technological change and customer expectations,” Mr Lawrence added.
“Consumers ultimately bear the cost.
“We call on the government to more systematically assess the cumulative cost burden of continuous regulatory change in banking, particularly on customer-owned banking institutions.”