introduced new measures designed to make it easier for consumers to
switch accounts to other providers. The move comes despite further
industry consolidation, but the government’s hand is strengthened
by its efforts to stabilise the country’s banking system. Dan Jones
and John Hill report.
Australian Treasury measures designed to make bank account
switching more practical for consumers became fully operational on
1 November (see RBI 601), but questions remain over their
practicality in the context of a ‘Four Pillars’ system that has
only been strengthened by recent merger announcements.
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The new measures, first announced in February 2008, constitute
four initiatives: the launch of a new listing and switching service
requiring banks to provide customers with accurate information on
direct debits and credits with a view to a future change of
account; a consumer complaints hotline for banking products; a
website explaining and clarifying how to switch; and an industry
review of entry and exit fees on mortgage accounts.
The Treasury said in February that “strong competition in the
financial services sector is critical to ensuring consumers get the
services they want at the lowest possible price”, but that
sentiment will be tested by the two major merger announcements
since that point: Westpac’s purchase of St George, announced in May
2008, for A$14.2 billion ($9.1 billion), and the Commonwealth Bank
of Australia’s (CBA) acquisition of BankWest from the UK’s
beleaguered HBOS for A$2.1 billion.
The latter acquisition will reassert CBA’s position as market
leader in terms of retail deposits (see table) but
Westpac’s earlier move means it retains its leading position by
retail customers and branch numbers.
The Australian Competition and Consumer Commission (ACCC)
approved the Westpac merger in August, saying it was unlikely to
lessen competition. But the combined entity will control
approximately 25 percent of the Australian mortgage market.
RBI research shows that retail loans for fiscal 2008
amounted to a total of A$220 billion – A$155 billion at Westpac and
A$65 billion at St George.
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By GlobalDataIn the UK, the examination of banking fees has led to a
protracted battle between the country’s banks and the Office of
Fair Trading, a government department. The Australian Treasury’s
review of mortgage charges has yet to become confrontational in
tone, but the government says it is committed to “shine a light on
fees and put downward pressure on them”, following the Australian
Bankers’ Association’s own review of penalty fees in 2007.
With the current financial crisis producing government
intervention in all major developed markets, the Treasury will be
in a strong position to exert such pressure.
Yet an emphasis on stability could conversely jeopardise
competition, as is already being seen in other markets. In the UK,
Lloyds TSB has been given an effective waiver with regard to
competitive concerns in order to purchase HBOS, while in the US,
JPMorgan Chase, Bank of America and Wells Fargo will all cement
their position as ‘superbanks’ via their respective acquisitions of
Washington Mutual, Merrill Lynch and Wachovia.
The Four Pillars system in Australia would be solidified still
further should the proposed sale of Suncorp-Metway take place.
The bank reported a sharp drop in profits in 2008, though retail
profit remained flat at A$278 million. That is roughly in line with
its peers, all of whom were able to increase retail profit despite
the likes of ANZ and NAB posting significant falls in full-year
profit – down 23 percent and 11 percent respectively.
ANZ chief executive Mike Smith said the bank was “looking pretty
good now” despite posting its first drop in profits for a
decade.
“The government reacted quickly,” he added, in reference to the
commitment to guarantee deposits and inter-bank lending.
The government has acknowledged the need for close collaboration
with its banks but reaffirmed its commitment to more oversight: “We
moved quickly to alleviate pressures in the Australian financial
sector… but when we say we want financial institutions to work
for their customers, we are serious”.
