Switch­ing costs hin­der bank com­pe­ti­tion: NAB

The Pak Banker - - Company& -

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

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