BSB 806 015

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BSB 806 015

WA home buyers big winners in mortgage change

03 Aug2015

Australians seeking to finance their housing dreams are the big winners from a decision by APRA according to P&N Bank CEO, Andrew Hadley.

Mr Hadley has warmly welcomed a move by the corporate regulator, which will force Australia’s major banks to lift the level of capital held against their residential mortgage portfolios.

The measure is in line with a submission made by P&N Bank on behalf of its 100,000 members to the recent Financial Services Inquiry led by David Murray.

“We pushed hard for this change because it went to the heart of what Australia needs to do to begin to create a more even playing field in the banking sector", Mr Hadley said.

“While the details of this arrangement may appear complex to the average mortgage holder, the implications for the home loan market are significant."

“As it stands today, the major banks have a significant advantage over their smaller competitors in terms of the amount of capital they need to hold against the funds they lend.

“This has effectively allowed them to hold less capital resulting in a significant competitive advantage on pricing and profitability."

From 1 July next year, all that will change when the majors and Macquarie Bank will be forced to allocate more capital against mortgages, moving one step closer to levelling what has been an unfair competitive environment. These five ADIs apply an average risk weight of around 16 per cent to their residential mortgages.  Following APRA’s announcement, these ADIs will need to increase their average risk weight to 25 per cent.

APRA has estimated that the increased IRB risk weights are equivalent to an 80 basis point increase in their minimum capital requirements. The major banks are likely to consider some repricing of the mortgage products as they look to manage the costs associated with this.

APRA’s website lists well over 100 banking institutions that are not affected by these capital reforms including P&N Bank.

“The majors will now be faced with a difficult choice. Either they accept lower returns on equity or will pass on the additional costs to their customers. We’re aware that already at least one major bank has indicated that the additional costs are likely to be borne by both customers and shareholders. The ultimate winner from this will be consumers as we see more intense competition in the mortgage market", Mr Hadley concluded.

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