POTENTIAL changes to the finance sector are set to level the playing field for smaller money lenders and their customers, according to Orange’s credit unions.
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Former Commonwealth Bank chief executive David Murray has delivered 44 recommendations to the federal government after his inquiry into the financial system. Among the proposals was to increase the amount of capital the large banks must keep to secure their loans.
The risk weight, or loading placed on a loan depending on the level of risk, is only 16 per cent for the big four banks - ANZ, Westpac, Commonwealth and National Australia Bank - compared to all other banks, building societies and credit unions, which have to apply a risk weight of 39 per cent.
If the recommendation is accepted, the big four will have to apply a risk weight of 25-30 per cent, which will increase the capital they will have to hold to secure their loans and bring them more in line with their smaller counterparts.
Orange Credit Union general manager Paul McNamara said the move would increase competition and opportunities for smaller lenders.
“If the big four try and recoup capital from customers, that would likely increase the amount they charge on their loans,” he said.
“It provides a safer and fairer system for everybody and there will be more competitive products. We’re saying people should consider us as a viable alternative.”
Mr McNamara said the recommendation was aimed at making the Australian banking sector more competitive on the international stage after the global financial crisis.
“Australia needs bank funds from overseas to fund loans because we borrow more than we save,” he said.
“What happens if a loan goes bad is the bank has to wear that loss, but because they are holding less capital, there’s more of a chance that they won’t have enough to cover the losses if we had another GFC.
“Australian banks need to get their capital levels as high as the international banks.”
First Choice Credit Union acting general manager Narelle Carr agreed the change would make the system fairer.
“The big four enjoy a funding cost advantage due to the assumption that they’re too big to fail,” she said.
“What I really noticed is they’ve acknowledged the major banks can own other banks and insurance companies, but consumers don’t know who owns what and it doesn’t allow them to make informed choices.
“If consumers aren’t happy with their bank, they move to another bank, but that may be still under the big four.”
danielle.cetinski@fairfaxmedia.com.au
