ACCC mortgage probe to demand banks’ internal documents

Treasurer Scott Morrison delivers his post-Budget address in the Great Hall at Parliament House in Canberra on Wednesday 10 May 2017. fedpol Photo: Alex Ellinghausen Photo: Alex EllinghausenBanks will be forced to hand over sensitive internal documents on their interest rate decisions, including board papers, as the competition watchdog puts home loan pricing under the microscope.


Australian Competition and Consumer Commission chair Rod Sims said on Wednesday he expected the inquiry, announced in last week’s budget alongside the $6.2 billion bank tax, would change pricing behaviour in the mortgage market.

With banks threatening to pass on the levy to their customers, the government has ordered the year-long inquiry into mortgage pricing as a way of pressuring the industry and lowering the chances of aggressive rate hikes in response to the tax.

It is the latest in a string of inquiries touching on banking competition which have been triggered by political anger over the banks’ interest rate decisions.

However, Mr Sims said a key difference with this probe was that the ACCC had powers to demand confidential information from the banks, which the watchdog could then assess before commenting publicly.

“We have the power to get whatever internal information we want to get,” Mr Sims said in an interview with Fairfax Media.

“We will be able to I think put a lot of information around what’s going on in the market, and I suspect in a way that probably hasn’t been done before.” Board papers

The ACCC will use these compulsory information gathering powers to demand internal documents, including board papers, from banks.

When companies knew their internal decisions were being scrutinised in this way, it tended to change their pricing behaviour, he said.

“It’s one thing for a company to set fees and charges on the basis that they can communicate to the public what they want to communicate, it’s another thing to do that knowing that we’ve got access to all the information that led to these decisions, and that we have a public reporting role,” Mr Sims said.

The inquiry would not impose penalties on banks unless it finds they are breaking competition laws, and Mr Sims said this is not expected.

Instead, he pointed out that previous scrutiny of other sectors had made a difference. He said an inquiry into gas supply had led to different pricing behaviour by the industry, while an ACCC finding that petrol was overpriced in Darwin had seen fuel prices drop by about 10?? a litre. Small banks win

Another deterrent to banks passing on the levy is that it will not apply to smaller banks; however these lenders argue the size of the levy will not have a significant impact on competition between banks.

Chief executive of Bank of Queensland, Jon Sutton, said he expected the ACCC inquiry would be “forensic,” and banks would keep this in mind if they were making changes on prices.

But he did not expect the tax itself to lead to a dramatic shift in the level of competition.

“In terms of competition, will it materially change the dial for what we do at BOQ? No,” Mr Sutton said. Complicated calls

The long-running debate about banks’ mortgage pricing has been clouded in complexity, as any number of factors can influence a mortgage rate decision, including funding costs, regulation, or a bank’s business strategy.

Given the complexity, analysts have questioned how the ACCC will be able to disentangle whether any future home loan interest rate rises are driven by a desire to pass on the levy, or some other factor such as the banking regulator’s clampdown on riskier lending.

In the past, banks have blamed interest rate rises on such factors as regulation, where observers suspected their true motivation was to protect profits.

Yet Mr Sims signalled the inquiry may be able to overcome these debates by demanding internal documents such as those for briefing board members.

“They’ll be providing reports to their board, those are based on their best internal information, and so we’ll be able to get hold of those,” he said. “That will tell us a lot, and I’m sure they’re not trying to confuse their board.”

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