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Post financial inquiry into Australia's big b -

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Post financial inquiry into Australia's big banks

Di Bain reported this story on Tuesday, July 14, 2009 12:18:00

PETER CAVE: There are calls for the competition watchdog, the ACCC, to conduct a post-financial
crisis inquiry into Australia's banking industry.

Banks now hold more than 90 per cent of the home loan market in Australia and aside from a handful
of mutuals and credit societies, other bank lenders have effectively been wiped out.

Mortgage brokers say the Commonwealth Bank is the latest to exert its muscle, telling brokers to
write a certain amount of business for them or face the chop.

Di Bain reports.

DI BAIN: Mortgage broker Wayne Ormond has had numerous battles with the big banks since he started
his Queensland-based broking franchise in 2004.

He describes himself as a David against the Goliaths of banking, offering the most competitive
mortgage advice to homebuyers.

But Mr Ormond says his job, and the entire broker sector in Australia, is being compromised because
the financial crisis has delivered too much power to the banks.

The latest issue he has is with the Commonwealth Bank, which has recently revised its policies for
brokers.

WAYNE ORMOND: Well, it started Di, back in January when they sent out a letter to all mortgage
brokers explaining to them that if they didn't write a level of volume, that was four loans a
quarter, the individual broker would be terminated from being able to use the Commonwealth Bank as
a lender on their panel.

DI BAIN: And what would that mean if they were terminated from using the CBA?

WAYNE ORMOND: Well, it would make it difficult for them to offer a range of loans from a range of
lenders.

DI BAIN: From July the 1st, if a mortgage broker misses targets set by the CBA they will need to
attend a re-accreditation course at a cost of $500.

The Commonwealth Bank isn't happy with the service of some of its mortgage brokers.

A spokesman says the new policy will ensure customers who apply for home loans with the bank have a
positive experience.

But Wayne Ormond says it's about the banks trying to line their pockets at a time when the economy
is vulnerable.

WAYNE ORMOND: My personal view is that the Commonwealth Bank is using the global credit crisis as
an opportunity to take down some of its competition and mortgage brokers had done very, very well
and continue to because they offer an opportunity for a customer to get to see what all the lenders
are doing and to have a competitive advantage over just dealing with one bank, because a broker is
meant to deal with, look after the customer not the bank.

DI BAIN: In the past few months the banks have increased their home loan market share from about 80
per cent to more than 90 per cent in Australia.

And the mortgage brokers sector has lost market share from about 50 to 35 per cent.

The Mortgage Industry Association's Phil Naylor says the collapse of the other bank lenders has
given the big banks a lot of power.

PHIL NAYLOR: I think the facts are that over the last two years, the major four banks have
increased their market share significantly. Mainly because the non-banks have fallen out of the
market largely because they rely on securitisation and that securitised market for mortgages has
just pretty well disappeared.

So the banks are now probably writing more than 90 per cent of all mortgages and the four banks are
writing a fair proportion of that so they have got a lot more market power than they have had for
many years and when you have got market power, I suppose it is natural in a free enterprise
society, you use it.

DI BAIN: With banks unwilling to pass on interest rate cuts, some economists are calling for a new
style of bank to be established - a "people's bank" they say will restore the balance of power in
the banking sector.

Other lenders such as mutuals and credit societies say the banking sector in Australia has been
severely distorted over recent months.

Louise Petschler the CEO of Australian Mutuals says there needs to be an inquiry into the issue.

LOUISE PETSCHLER: We think, as smaller institutions in the banking market, that there are a lot of
issues as we come out of the financial crisis, as we see the impact on wholesale funding markets,
as we see how the government guarantee on deposits and wholesale funding has played out. We think
there are a lot of issues that are worth reviewing.

I think one of the questions we have is whether now is the right time or whether some time perhaps
in the next few months when we see the final fall out and hopefully some return to the wholesale
funding market would be a better time to have a sit back and really think through reforming
Australia's financial market and how we bring that competition issue back to the forefront once we
have solved the stability issue, which we have very successfully in Australia.

DI BAIN: Australia's Bankers Association declined to be interviewed for The World Today.

PETER CAVE: Di Bain ending that report.