The ability by Australia’s major lenders to generate super normal profits suggests that the banking industry lacks sufficient competition according to testimony given during the senate inquiry into the banking industry.
According to The Australian Centre for Financial Studies, the dominance of the big four Australian lenders is the main reason behind their ability to maintain strong profitability.
In giving evidence, the centre said return on equity generated by the big four lenders was 15 percent, which suggests competition is simply inadequate.
The group suggested that Federal Government place the banking industry under review, so it can better understand how such a small group of banks are able to control such a large share of the market.
“Implicit and explicit government support conveys competitive advantages to particular financial institutions”. The centre said
The centre recommended the big four should face different regulations compared to other lenders. Three of the four failed to pass on this month’s rate cut to their customers in full.
ANZ was the only lender to pass on the rate cut in full, whilst rivals CBA, Westpac and NAB only cut their interest rates partially in response to the central bank easing.
Last week the Central Bank slashed rates to their lowest level since the peak of the financial crisis and more cuts are expected. Westpac estimates that rates could fall another 75 basis points from their current level of 3.5 per cent.
This article was first published by Money AU Australia’s leading financial comparison website