Planning may benefit from bank reforms

The financial planning industry may emerge as an indirect beneficiary of the Government’s changes to the banking system, particularly its promised initiatives to develop credit unions and building societies as a pillar of the banking system.

The proposed changes, announced by Treasurer Wayne Swan (pictured), see exit fees on new home loans outlawed from 1 July next year, increases the ability of consumers to switch both deposits and mortgages between lending institutions, empowers the Australian Competition and Consumer Commission (ACCC) to prosecute anti-competitive price signalling and introduces a number of other changes designed to improve competitive practices.

The Government has also signalled that it will allow banks, credit unions and building societies to issue covered bonds to broaden access to cheaper, more stable and longer-term funding as well as utilising superannuation savings “to domestically fund more productive investment in our economy”.

It said it would also be developing “a deep and liquid” corporate bond market by launching the trading of Commonwealth Government Securities on a securities exchange to reduce the nation’s reliance on offshore wholesale funding markets.

The changes are expected to fuel further growth in the non-bank sector, providing greater scope for the provision of advice via credit unions and building societies as they seek to further compete with the major banks.

Commenting on the Federal Government’s Banking Reform package, the MFAA said: “While appearing on the surface to deal with competition issues, the Government Banking Reforms have failed to deal with the root cause of lack of competition in the banking sector: reliable funding sources for non-bank lenders.”

The Government’s announcement has received a mixed response from the financial services industry, with the Mortgage and Finance Association of Australia describing it as a missed opportunity because it “does nothing for non-bank lenders, in fact it distinctly disadvantages them thereby reducing competition by banning exit fees”.

MFAA chief executive Phil Naylor claimed removing deferred establishment fees would reduce consumer choice because non-bank lenders had been able to offer consumers very competitive interest rates by deferring some of their set-up costs into deferred establishment fees, which are paid only if there is an early termination of the loan.

“It is futile to establish mechanisms to enable switching if there is no viable and competitive alternative to switch to,” he claimed. “The reality is that exit fees may in fact be replaced by establishment fees, making it harder for consumers to get a home loan.”