The banking tax is a step in the right direction, but it will not meaningfully level the playing field between the major banks and smaller rivals, says Bank of Queensland chief executive Jon Sutton.
As the major banks ramp up their protests over the $6.2 billion levy, Mr Sutton said it would help curb the funding advantage the big banks receive from being “too big to fail”.
Since the 0.06 percentage point levy on bank borrowings will only apply to the big four banks and Macquarie, the government has also talked up the pro-competitive impact of the tax.
Mr Sutton backed the levy, saying the bigger rivals were able to raise money more cheaply because their credit ratings were boosted by the market’s assumption the big four would be rescued by taxpayers in a crisis.
“It goes some way to paying for the taxpayer guarantee that the four majors and Macqaurie get through their two-notch upgrade for too big to fail,” he told BusinessDay.
Even so, he said the big banks would still end up passing on some of the cost to their millions of customers, and the tax would have only a marginal impact on competition.
A big obstacle to competition is that the big banks are still able to set aside much less capital for each dollar they lend out, because they can use far lower “risk weights,” which reward lenders with the most sophisticated risk systems.
Regulators narrowed the gap in risk weights in 2015, but Mr Sutton said it still meant the majors made “super profits” on mortgages.
He pointed to the large range of products through which banks could pass on the levy, including their credit card portfolios, home loans and term deposits.
“The big banks run very complex businesses,” Mr Sutton said.
“They will probably have different ways and methods of transferring those six basis points back to consumers. Will it really change our market share from 1.85 to 2.5 per cent? No it won’t.”
“It’s not a free kick for regional banks. We gratefully accept any changes that provide a more competitive playing field, and this is a small step in doing that.”
Other smaller lenders including Industry super-owned bank ME and Bank of Bendigo have also backed the levy.
In a sign of the pressure the big banks may face if they try to pass on the tax to borrowers, a growing share of bank loans are being written by mortgage brokers, who argue they enhance price-competition between banks.
Latest figures show 54 per cent of loans are written by mortgage brokers, and HSBC on Tuesday recommenced using brokers after 10 years of trying to sell loans without brokers. It will partner with Aussie Home Loans and a limited number of other brokers.
HSBC’s head of mortgages and third-party distribution Alice Del Vecchio said the bank was keen for growth and using a branch network alone was not enough.
“We’ve got 1 per cent market share, we’ve got such an enormous opportunity to grow,” she said.
The major banks argue multinationals such as HSBC should also pay the bank tax. A spokeswoman said HSBC had no comment on the issue.