After three of the so-called Big Four lenders posted higher interest rate hikes than the central bank, Treasurer Wayne Swan said that Australian Prime Minister Kevin Rudd will see to it that these lenders will face tough competition.
This statement was stated in an economic note that was released in Canberra. Swan added that the Rudd administration knows the need to make Westpac, Commonwealth Bank and ANZ feel the pressure of competition after the said banks raised their home loan mortgage rates more than the official cash rate.
With the RBA raising their interest rate to 3.75 per cent, Commonwealth Bank raised its interest to 6.61 per cent while ANZ and Westpac raised their rates to 6.66 and 6.76 per cent respectively. Meanwhile, the National Australia Bank followed the RBA’s 25-basis-points increase to bring their interest rate to 6.49 per cent.
With the collapse of the U.S. subprime shutting down a number of global securitization markets, the building societies, credit unions, home loan founders and smaller lending companies in Australia have fought for funding and market share. But though their competition might be eroding, the Big Four’s potential mergers with its smaller competitors are likely to be disregarded.
Competition and Consumer Commission Chairman Graeme Samuel stated that lesser competition means that the ruling companies can charge for higher prices. Because of which, Samuel said that potential mergers will be thoroughly examined.
With their intention of bringing competition, the government purchased $8 billion of the mortgage-backed bonds of the smaller lenders. Swan said that they have been buying mortgage-backed residential properties since November to increase the competition within the home lending industry.
This policy will ensure a steady flow of funds for the smaller lenders and greater competition against the big banks. According to a data by the Australian Prudential Regulation Authority, the Big Four had total deposits of A$861.6 billion by the end of August. This figure is triggered by the folding of smaller lending firms that have succumbed to the pressure of the financial crisis.
