Opening statement - Inquiry into Competition within the Australian banking sector
13 December 2010
Senate Economics References Committee's inquiry into Competition within the Australian banking sector
Opening statement by Louise Petschler, CEO, Abacus – Australian Mutuals
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Thank you. We would like to make a short opening statement that will include some comments on yesterday's Competition in Banking Package.
Abacus represents Australia's mutual banking sector – 115 credit unions and mutual building societies, who together serve more than 4.5 million Australians.
Our industry is very proud of its credentials – a long history of safe and prudent management of our members' money, of products and services in banking that put customers first, of sensible and well-funded growth and low risk.
This approach sees us here today with the best credit quality in the market, the lowest amount of arrears and bad debts, the highest levels of liquidity and capital and highest customer satisfaction in the banking market.
Abacus member institutions – credit unions and building societies – are mutuals, owned by their customers. They are built on the ethos of self-help – with mutuality as the cornerstone of values and practice.
This is a different model from the listed banking sector.
Our model absolutely and unambiguously puts the customer first because we don't have to please a separate group of shareholders and analysts chasing super returns.
Credit unions and mutual building societies have earned their reputation for service, value and security.
We believe our sector is a natural place – and a prudent and credible place – to look to for ideas and advice to improve banking competition.
Credit unions and mutual building societies will be delivering competitive services to our members long after the current debate moves on, and into the next.
But with some sensible reforms we know that we can play an even bigger role and that is an opportunity that we relish.
We welcome the package announced yesterday as a constructive measure, and we welcome the Committee's inquiry as an important contribution to bringing more competition into the banking sector.
Obviously the focus today is on the package announced yesterday by the Deputy Prime Minister, which does feature the mutual banking sector as a great platform to use to increase the competitive pressure on the big banks.
Not surprisingly there's a lot of political debate about the impact of the Government's planned reforms. Some of it sensible questioning of whether there are longer-term initiatives that need to be added to the agenda, some a bit silly and short term. We hope that through forums like this we can move past that point scoring to a bipartisan approach that answers consumer demand for a more contestable market.
I wanted to step through briefly how we – the credit union and mutual building society industry – respond yesterday's package and where we think there is room for further work.
This is a good announcement for consumers.
The reforms announced yesterday will have a real impact on consumer choice, and will increase the competitive pressures on the major banks.
We have heard the claims from banks saying that there is plenty of competition and the commentary today.
But competition is more than rebadged offerings from the same factory. Competition is also about more than pricing points, it's about access, service, standards and choice.
And our members feel that the initiatives the Government released yesterday will help build a more contestable market.
The mutual sector sees awareness and funding costs as our major competition hurdles. The Government's package makes some good steps forward in these areas.
On awareness we know that a lack of understanding about CUBS safety, the fact that all banking institutions – not just the big banks – are protected and regulated to the same degree, is a major barrier to consumers making the switch.
This isn't just our opinion. We have over 12 months of very active market research and consumer testing that shows this is a major hurdle. We have long argued that action on this front would help competition.
So we especially welcome the 'Bank on a better deal' campaign announced yesterday.
With the new "Government Protected Deposits" seal this will help consumers understand that all banking institutions meet the same strict rules and have the same protections.
This will strike at the unfair advantage gained by major banks due to misconceptions that they have a higher prudential standing than other institutions.
The 'Protected Deposits' seal is a variation on our recommendation for simpler regulatory terms to help consumers make sense of the term "ADI".
The campaign, along with new measures to make it simpler and easier for customers to transfer deposits and mortgages, will improve competition in banking market.
I want to be very clear that this is more than window dressing. These are sensible, practical, and useful reforms. We will make full use of them to increase competitive pressure in the retail banking market.
We welcome news that the Financial Claims Scheme is now permanent – but our view remains that the $1 million cap is simple and well understood and should be left alone.
The perception that major banks are too big to fail is an anti-competitive factor in the banking market. Any reduction in the FCS cap from $1 million will benefit the four major banks to the competitive detriment of other regulated banking institutions.
Yesterday's announcement committed Treasury to actively facilitate projects that are underway in our sector to raise wholesale funds by working together.
We also welcome more Government support for the securitisation market because the recovery of this market will help all banking institutions compete more effectively.
We see the Government's announcement as a constructive start to a long term process of delivering more competition to the major banks. We will use the consultations to actively pursue issues that will benefit Australian consumers.
I should clarify in relation to the focus on our sector that we aren't calling for radical or ad hoc special deals for mutuals.
What we do want is recognition of the mutual structure and sensible reforms that encourage competition and a range of prudent players.
Australia is one of the few jurisdictions that does not recognise the mutual system in its laws. We support a fair regulatory system that works for everyone – ourselves included.
That's why work on releasing franking credits for mutuals is important, an example of an area where our owners are denied a benefit that the owners of the banks receive, and mutuals a chance to deliver further value to members.
We will continue our work on this and related issues over coming months.
We're keen to bring more competitive pressure onto the big banks.
We won't always be the cheapest and don't claim to be – but over any reasonable period of time you will be better off if you are with a mutual over a big bank.
Yesterday's news and the work of this Committee, makes clear that serious work on competition reform has begun.
October ABS data tells us that credit unions and building societies have commenced the process of winning back market share in home loans. So our work has begun too.
We are happy to respond to any questions you may have.
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