Big four face new surge in competition

CREDIT unions and building societies will be allowed to call themselves banks under reforms Treasurer Scott Morrison says will deliver better home loan deals.

In a bid to lessen the power of the big four banks, the Government will remove restrictions on which lenders can call themselves banks, arguing it will ramp up competition and provide more options for customers.

Similar reforms in the UK encouraged a flood of new lenders entering the market, prompting the big banks to match their offerings with cheaper mortgages.

The changes could also encourage innovative onlineonly banks to set up shop, providing banking and lending services on digital platforms for customers who do not need to use bricks-and- mortar branches and ATMs.

Mr Morrison said it was part of the Government’s plan to increase competition in the banking sector.

“Allowing more lenders to be called banks will mean better access to cheaper loans and more generous deposit rates for Australians,” he said.

“It will encourage smaller and online lenders to set up shop in Australia, offering more competitive loans and products to customers.

“This is about giving Australians more opportunities to get a better deal for their home loan and their deposits.”

The Government has prepared draft legislation for the reforms, which were flagged in this year’s Budget, to allow any authorised deposit-taking institutions to call themselves banks.

Currently, only those with capital greater than $50 million can use the title.

If the changes pass Parliament, almost 60 credit unions and building societies will be able to change their names.

The Government is hopeful that other small lenders will also enter the market.

Mr Morrison assured Australians that all deposittaking institutions were subject to scrutiny by the Australian Prudential Regulation Authority, and that all deposits with registered lenders were protected by the government’s financial claims scheme guarantee.

“In addition, the legislation will reinforce APRA’s discretion over whether or not to permit the use of ‘bank’, ensuring that community expectations around the application of the term are maintained,” Mr Morrison said.

The draft legislation will be released for consultation today.