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Funding a major hurdle for ‘Fifth Pillar’
Steven Ramage
Lisa Claes
Cathy Dimarchos
Recent consumer outrage over the major banks’ interest rate rises above the official cash rate has prompted a flurry of political activity. As both sides of politics try to address public dissatisfaction with a lack of competition, Treasurer Wayne Swan has proposed the creation of a socalled ‘Fifth Pillar’ of banking, made up of credit unions and building societies. FBAA president Peter White has expressed doubt that non-bank lenders like credit unions and building societies can live up to Swan’s vision as a new pillar in the banking sector. “I think it’s a big call to term it a fifth pillar,” White said. “I can’t see credit unions and building societies really trying to compete against the banks. They do, but it’s a whole different structure.”
ING Direct executive director of mortgages, Lisa Claes, agrees, saying non-bank institutions will not be on equal footing with the Big Four, and will have a difficult time securing funding. “It’s not an equal race in terms of access and cost of credit. If you have a higher credit rating, which the majors do, it will be cheaper for you to borrow funds to on-lend to your customers.” Swan’s proposal arises from consumer demand for more choice and competition, and political pressure to do something about it. However, Steven Ramage, Citibank’s director of mortgages, has questioned the fundamental assumption that further competition will benefit Australian consumers. “I don’t think there’s necessarily a need for more competition,” Ramage commented. “We have four major banks. Banks
need to be large in order to work on the world stage.” In an exclusive interview with BrokerNews TV, Ramage said he believes the size of the Australian marketplace limits the number of players that can realistically participate. “We are a small market. Four major banks suit us,” he said. “There is still a gap of somewhere between 10% and 20% where other players fit in the banking market, and mortgages perhaps. There are enough players in there to fill that.” What is needed, Ramage believes, is the guarantee of securitised markets. “With the GFC, a lot of the securitised markets dried up. We need that market to return. That was the original creator in the late 1990s of competition in the market that brought mortgage rates down.”
Ramage said the government can take steps to ensure the stability of this market and see a natural return of competition to the sector. “Some of the options being looked at include the government guaranteeing those facilities, and that kind of thing will help stabilise the market, bring investors back and make that a reliable funding option,” he said. Cathy Dimarchos, general manager of commercial wholesale funder Sintex Consolidated, sees the increase of competition, whatever form it takes, as an opportunity for mortgage brokers. Dimarchos said the growth of building societies and credit unions will provide brokers with new alternatives to offer clients, though gaining access to these institutions may prove to be a challenge. “Whether they can get direct access to the specific institutions is another thing, but it is another avenue,” Dimarchos said. “It might mean they have to adapt to gain access, but it will certainly give another avenue to refer business and to provide clients with alternative options, especially now as banks are not particularly focused on providing that service and rapport with brokers.” To see BrokerNews TV’s coverage on Treasurer Wayne Swan’s ‘Fifth Pillar’, visit www.brokernews. com.au/TV/ and watch The Big Story: Are four pillars enough?
SEQUAL warns regulators away from products SEQUAL CEO Kevin Conlon has reiterated that the federal government regulations of the reverse mortgage market are nothing more than a health check of the industry. “Some months ago, I predicted that the regulatory review being conducted by Treasury was a health check of the industry,” Conlon said. “I’m confident this is the case. “Reverse mortgages are not offered in Australia without a no negative equity guarantee,” Conlon added. “All SEQUAL members are obliged to provide a no negative equity guarantee, and we welcome the decision to reinforce this fundamental consumer protection through a statutory obligation.” Conlon has gone on to defend the industry against its critics, citing its historical standards of practice. Reverse mortgage and equity release loans are generally
only available to people over the age of 60, and some have the highest interest rates and often carry additional fees. However, according to Conlon, of the 42,000 reverse mortgages currently on issue, the Financial Ombudsman has only dealt with four complaints. “Name another industry that has a track record like that. Four out of 42,000. And three were found in favour of the lenders,” he said. Though Conlon does not believe the federal government regulations set to come into effect in the new year will contain any surprises for the industry, he has offered an admonition to those considering the regulatory action. “The regulatory review has been viewing three broad areas: disclosure, financial literacy and product design,” he said. “I think it is entirely the business of regulators to look at the first two. Beyond the statutory protection
that is being considered for no negative equity guarantees, I do not believe regulators have a role to play in product design.” Seniors First managing director Darren Moffatt agrees that the regulations seem to echo industry practices, but adds that any outcomes affecting funding could decrease competition in the marketplace. “What could be an issue is if there is a requirement for more capital,” Moffatt said. “It could be an inhibitor for competition and new entrants. I think the government has the broad strategy right in terms of protecting consumers, but if an unexpected outcome is a further cut in supply it would hurt the market.” Moffatt echoes Conlon’s sentiments about the need for increased financial literacy for seniors, but adds that Seniors First has been proactive in taking
on this task. “We have done a lot of work on consumer education,” he said. “There is a huge opportunity and demand. Financial literacy is the role of industry, and industry can play that role most effectively. If the government plays a role in this – as long as it doesn’t exclude industry – that’s great.”
Kevin Conlon