Switching costs hinder bank competition: NAB
SYDNEY: The National Australia Bank (NAB) argues the costs of switching between or exiting home loan products is the main barrier to competition. (AFP: Greg Wood)
The National Australia Bank argues the costs of switching between or exiting home loan products is the main barrier to competition in the banking sector, not the number of main players.
The Federal Government is devising a plan to increase competition in the sector and that may include creating a fifth pillar of building societies, credit unions and smaller banks.
NAB is the latest major lender to make its submission to the Senate banking inquiry.
It says the committee should be exploring the barriers that stop consumers switching between lenders.
"The persistence of mortgage exit fees in the Australian market place is a classic example of a traditional switching cost mitigating against competition and better outcomes for consumers," it said in the submission.
"Switching costs are fixed costs that buyers face when switching suppliers. The larger the switching costs, the harder it will be for newer entrants to gain customers or cheaper existing participants to grow market share." NAB also says the challenges of funding the Australian banking system remain.
"Funding costs are expected to continue to increase as cheaper term funding is replaced with more expensive funding of a longer duration," it said in its submission. Yesterday, the Commonwealth Bank warned the Federal Government against introducing extra regulation in order to boost competition.
In its submission to the Senate inquiry, the bank's chief executive, Ralph Norris, said the industry was competitive despite ongoing funding cost issues. -PB News