Australia’s four largest lenders, led by Commonwealth Bank of Australia and Westpac Banking Corp., may emerge as victors from Treasurer Wayne Swan’s package to promote banking competition, analysts and academics said.
Commonwealth Bank, Westpac, National Australia Bank Ltd. and Australia & New Zealand Banking Group Ltd. rose in Sydney trading as Swan’s 13-point plan stopped short of investors’ most pessimistic expectations. A proposal to let financial-services providers issue covered bonds and broaden access to funds will help the top lenders the most, according to Credit Suisse AG.
“We see this as a major win for the major banks,” analysts led by Jarrod Martin at Credit Suisse in Sydney said in a note to clients dated today. They are “perhaps long-term relative winners from the reforms.”
Swan yesterday announced plans to help customers switch lenders, strengthen Australia’s smaller banks, and develop the domestic bond market to allow banks to raise cheaper funds. The package was a response to public anger at record profits from the biggest banks, which control more than 80 percent of the home-loan market, and mortgage-rate advances that outpaced increases to benchmark borrowing costs at the central bank.
Commonwealth Bank, Australia’s largest, added 1 percent to A$51.12 at 2:02 p.m. local time, trimming this year’s decline to 6.8 percent. Westpac rose 1.3 percent to A$22.87, taking the year’s drop to 9.6 percent. National Australia Bank climbed 1.4 percent to A$24.55 and ANZ Bank gained 1.1 percent to A$24.09.
‘Political Footballs’: In a parliament where no party has an outright majority, there’s a “tangible” risk some of the treasurer’s plans will fail, Credit Suisse said. Swan’s minority Labor government needs support from other lawmakers in the lower house of parliament to pass legislation.
As Swan last month said preparations for reforms were underway, UBS AG said the banks had become “political footballs.”
Swan plans to ban exit fees on new home loans from July 2011 and empower the Australian Competition & Consumer Commission to pursue banks that signal interest-rate changes to rivals. Aiming to turn credit unions and building societies into a competitive force, he said a government guarantee on deposits, put in place after Lehman Brothers Holdings Inc. collapsed, will be permanent.
The package is unlikely to ”significantly impact” in the near term the profitability of the biggest banks or regional lenders such as Bank of Queensland Ltd., Nomura Holdings Inc. said in a note to clients dated yesterday.
‘Very Modest’
“The outcome appears very modest,” said Victor German, an analyst at Nomura in Sydney. “We see the restricted nature of the reforms as a near-term positive for the majors.”
Since October, Westpac and ANZ Bank have argued that covered bonds would help the banks reduce their reliance on foreign debt markets for funding. Australians borrow more than they save, and the top lenders have all blamed the rising cost of offshore funds since the crisis on the increase in domestic mortgage costs.
Australian regulators currently ban the sale of covered bonds because they conflict with local banking laws. Mostly sold by European banks, covered bonds attract higher ratings than regular notes because they’re backed by assets such as mortgages that stay on the lender’s balance sheet and can be sold in a default.
Covered Bonds: Allowing covered bonds will help “secure the long-term safety and sustainability” of Australia’s banking system, according to a federal document detailing the reforms. Treasury may impose a cap on the amount of covered bonds that each bank can sell, “for example five percent of an issuer’s total Australian assets,” it said.
A 5 percent cap would allow for a total of about A$100 billion of covered bond sales, Deutsche Bank AG analysts Gus Medeiros and Colin Tan wrote in a note to clients today.
The first sale of covered notes in New Zealand in June, a NZ$425 million ($318 million) offering by Bank of New Zealand, was priced at a 38 percent discount to what the nation’s banks would pay without cover, according to Moody’s Investors Service.
Central Bank Governor Glenn Stevens, appearing before a Senate committee studying competition in the banking industry in Sydney today, said Australia’s mortgage rates are at appropriate levels for the economy and access to home loans is “adequate.”
Between them, the four biggest banks control almost 90 percent of residential mortgages sold by all banks, and write 83 percent of all loans, according to October data from the Australian Prudential Regulatory Authority.
The treasurer’s proposals don’t go far enough to boost competition, said Frank Zumbo, competition lecturer at the Australian School of Business in Sydney.
“Swan’s package represents a minimalist approach to dealing with the very serious lack of real competition,” Zumbo, said. “The package relies heavily on proposals that may take years to implement or that may never see the light of day.”