Big Four Banks To Face Stiffer Competition

Post by Sharat on May 12, 2010 · Under Australian Economy, Business News, Capital Markets, banking · Comment

In its response to growing criticism that the Big Four Australian banks wield too much market power, the Federal Government has introduced new regulations which will encourage the development of the corporate bond market, as well as proposed new tax cuts for smaller lenders, that will enable them to raise money on wholesale international markets more easily.

The government has also said it wants to introduce a 40 per cent discount on taxes on interest earned by deposits held in banks, credit unions or building societies. Such a cut would provide more incentives for retail investors to hold their cash in a wider range of financial institutions.

Federal Treasurer Wayne Swan says he believes that the proposals would help to “put more competitive pressure on the big banks over time”.

As part of its response to the Henry Review, the government said it would move to make it easier for listed companies to undertake bond issues aimed at retail investors in Australia.

The Australian Securities & Investments Commission (ASIC) will oversee the new regulations, which will enable companies whose shares are listed on the Australian Securities Exchange to engage in bond issuance aimed at both retail and institutional investors using a more streamlined process, which will do away with the need for lengthy prospectus.

The Treasurer said the measures would “boost competition in business lending” by making it “easier for businesses to borrow directly from retail investors and reduce their reliance on borrowing from banks”.

Mr Swan said he expected the measures to allow local operations of foreign banks to “continue their active lending to Australian businesses at even more competitive interest rates”.

The government has become increasingly concerned at the criticism which suggests that Australian banking lacks competition, and is dominated by the Big Four lenders, who used the impact of the financial crisis to increase their market share, at the expense of smaller regional Australian lenders.

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