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Banking competition reform lagging: report

AAP logoAAP 16/12/2016 Petrina Berry

Efforts to reform Australia's banking system and improve competition measures are moving too slowly, two years after a major inquiry into the financial system, a new report commissioned says.

The Customer Owned Banking Association, which represents credit unions, mutual banks and building societies says four key recommendations of the 2014 Financial System Inquiry, dealing with competition between big and small institutions, are yet to be fully realised.

COBA commissioned Deloitte Access Economics to examine the progress of the recommendations covering capital standards, regulatory requirements and risk assessments of mortgage portfolios for big and small institutions.

"Some progress has been made on all four recommendations but significant work is still required to complete implementation," the report, released on Friday, said.

The report found there has been little progress in relation to the FSI's recommendation 30, which called for a review of how regulators balance competition considerations against other objectives.

It said industry consultation on regulatory and legislative change is required on many of the outstanding commitments.

"While the progress against the four recommendations will help rebalance the competitive dynamics in the banking sector, it may not be enough to increase financial system competition substantially," the report said.

The Deloitte report recommends a Productivity Commission inquiry into the state of competition in the banking sector.

COBA said the report highlights the urgency for the government and regulators to implement the key FSI reforms.

"There is no time to waste, yet Deloitte Access Economics' report card finds only limited progress on the key recommendations," COBA chief executive Mark Degotardi said.

Mr Degotardi said regulators' decisions had a significant impact on competition and backed the report's recommendation for the Productivity Commission to probe whether procedures - such as how the Australian Prudential Regulation Authority applies the cap on investor lending growth to smaller institutions - are creating barriers to competition.

The federal government has rolled out stricter capital rules with the big four banks now required to base regulatory capital on at least 25 per cent of mortgages being at risk, while smaller lenders must base their risk weightings at 39 per cent.

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