Editorial: Let Australia learn from us on banking

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Opinion

Finsec, the bank workers' union, has wasted no time urging the Government to adopt Australian banking reforms aimed at boosting competition. "The direction of this is to throw more transparency on to the actions of banks and we think that's in the interests of customers," said spokesman Andrew Cassidy. Perhaps so across the Tasman, and the Gillard Government's initiative certainly has broad political and popular support there. But applying the same treatment here would make sense only if the banking environment was comparable to that of Australia. It is not.

The moves announced by the Australian Treasurer, Wayne Swan, will make it easier for consumers to shift to another bank, most notably by abolishing mortgage exit fees on loans taken out from next July. Customers will be given one-page documents outlining how to compare mortgages. There will also be an inquiry into making account numbers portable, and an attempt to lower the cost of money for alternative lenders, such as credit unions.

As well, the powers of the competition regulator, the Australian Competition and Consumer Commission, to act against banks if they send price signals to each other to keep their interest rates higher than would otherwise be the case are to be expanded.

These moves are a response to the groundswell for Canberra to do something, anything, about the banks. The big four - Westpac, ANZ, the National Australia Bank and the Commonwealth Bank - have attracted popular antipathy by lifting mortgage rates faster than the Reserve Bank of Australia has increased the cash rate, while reporting record profits and awarding their executives lavishly. Historically, they have also imposed a punishing raft of fees on Australians.

Their record in New Zealand has been more benign. Mortgage exit fees have not existed for a long time and other levies have, in general, not been so severe as to attract public odium. That is as it should be. Unless banks push the boat out too far, there is a strong case for such fees. It is illogical to suggest banks should not be able to recoup costs imposed on them by customers.

In the case of mortgages, there is also the issue of the contract signed by the bank and the borrower, and what compensation should be due if this is breached. Mr Swan has paid no heed to this. The only solace for the banks is that the presence of contracts meant Canberra could not abolish exit fees on existing loans.

Most fundamentally, the difference between Australia and New Zealand lies in the presence of Kiwibank. It provides a degree of competition and, therefore, a market standard that is absent across the Tasman. Mr Swan hopes to build a "fifth pillar" to take on the big four banks by making borrowing easier for smaller mortgage providers, such as building societies and credit unions. But his tinkering with their cost of funding will give only temporary relief at best. It may even strengthen the hand of the big banks.

They now control nearly 90 per cent of home mortgages. Their reach has increased over the past few years through the acquisition of many smaller lenders. The Australian Government's initiative may allow customers to pick and choose their bank more easily, but it is unlikely to make a dent in the big four's market power.

Equally, it is possible that any building society or credit union that does expand could adopt the banks' approach and become part of the same problem. If so, the call for a publicly owned bank that provides competition would become louder. In time, Australia may even catch up with New Zealand.