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More competition in the mortgage market required, say non-bank lenders

The big four banks cry poor, but it’s the smaller financial institutions who have been stuck for funding and largely locked out of government efforts to provide assistance to the banking sector. Competition is crucial, but when non-bank lenders account for less than 10 per cent of the mortgage market, providing a true alternative to the major banks can prove to be tough.

Chris Whitehead, the soon-to-be CEO of Credit Union Australia, joins Peter Switzer to discuss how the credit unions have been affected by the Global Financial Crisis, as well as how the government can continue to support smaller financial institutions and ensure strong competition returns to the market.

GFC repercussions

The supply of loans to non-bank lenders has been reduced and growth for credit unions has been affected. Whitehead says this has had an effect on competition.

“Competition has certainly reduced and there has been a big concentration on the lending side and the availability and price of funding remains a key concern for us,” says Whitehead. “What we have been able to do is significantly grow our deposit base, and that has helped enormously in terms of funding our business.”

The Global Financial Crisis called for quick thinking and this included the government backing up deposits to curb consumers concerns, which Whitehead says was absolutely essential at the time. This, however, drove many consumers to larger institutions, something in which media focus and discussion had a part to play.

“I think there’s been less focus on competition and that is hurting those organisations that are seeking to compete with the big four,” says Whitehead. “So if you like, being starved as much of attention as of the financial gain.”

Marketplace competition

So what’s the solution? The government’s AAA rating can be used to access more funding to distribute to smaller institutions, in order to grow competition in the marketplace.

“I do think we’ve moved from a phase, which was about stability in the system, to now starting to say well stability is important, but so is competition, says Whitehead. “Perhaps we’re not seeing enough competitive force in the market place, and it’s in the real interest of the government and the community to see greater competition.”

 

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Friday, October 02, 2009

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