The head of Australia’s competition watchdog is calling for more price competition among banks to lower home loan borrowing rates.
Australian Competition and Consumer Commission (ACCC) chairman Rod Sims says price competition in the banking sector may be an illusion after a recent report by his organisation found discounting was not synonymous with vigorous competition.
Mr Sims told the Australian Financial Review banking and wealth summit in Sydney that the current Banking Royal Commission is also revealing failures that cannot be blamed on strong competition.
“The poor performance and failures of banks worldwide, that have often prompted enhanced stability measures, were not caused by excessive competition. Quite the contrary,” Mr Sims said.
“Often they appear to have been caused by inappropriate behaviour and endemic short-termism, possibly driven by a desire for huge bonuses.”
He said strong competition would force lenders to focus on customers rather than just profits and financial stability will be helped by more competition.
Mr Sims said internal documents reviewed by the ACCC reveal a lack of vigorous price competition between ANZ, Commonwealth, NAB, Westpac and Macquarie.
“In fact, their behaviour more resembles synchronised swimming than it does vigorous competition,” he said.
“What we found is that the pricing behaviour … appears more consistent with accommodating a shared interest in avoiding the disruption of mutually beneficial pricing outcomes, rather than vying for market share by offering the lowest interest rates.”
Mr Sims said the big four banks, which account for about 80 per cent of the nation’s outstanding home loans, largely focus on each other when setting rates, rather than what smaller lenders are doing.
The banks had rarely competed by offering the lowest headline variable interest rate to borrowers and usually moved their interest rates at the same time, he said.
Mr Sims also said discounts were not really discounts considering prices were already inflated.
“If a monopolist or oligopolist offers a 10 per cent discount on a price already inflated by market power, we wouldn’t say this is evidence of vigorous price competition,” he said.
He said loyal customers tend on average to pay higher mortgage rates than new borrowers.