Bitter bank chiefs are blaming punitive prudential regulations for mortgage portfolio shake-ups disrupting their cash flows, marketing strategies and awarding strategic free kicks to the big four.
'Good corporate citizenship' is being punished by regulations that ignore the competitive impact of imposing 10 per cent growth caps on their mortgage portfolios, which are dwarfed by the majors, they claim.
"No good deed goes unpunished," said Peter Lock, chief executive of Heritage Bank, the nation's largest mutual bank.
His comments follow a new round of mortgage portfolio restructuring by smaller banks attempting to stay comfortably under the growth caps imposed by the Australian Prudential Regulation Authority to contain interest only borrowing.
Mr Lock, who supports regulatory efforts to cool the market, said smaller banks were "inadvertently penalised" because of a one-size-fits-all approach.
"It is a blunt macroeconomic tool that locks in market share" and inhibits growth strategies, he said.
Another small bank, Perth-based Blue Bay, this week announced it is increasing variable and fixed interest rates on a range of mortgage products to remain with regulatory caps.
It is also pulling an "interest only during construction" option for borrowers until further notice.
"With ongoing changes being implemented across many funders on an ongoing basis and need to manage volumes within certain segments of the market," a bank spokesman said.
MyState chief executive Melos Sulicich said the big four banks – Commonwealth Bank of Australia, Australia and New Zealand Banking Group, National Australia Bank and Westpac Banking Group – are being advantaged because they inhibit competition and imposing financial obstacles for smaller banks to build market share.
"We want to see competitive neutrality," Mr Sulicich said.
MyState is a Hobart-based listed financial services group that uses third-party channels, particularly mortgage brokers, to augment distribution to the mainland.
"The government is making it difficult for small banks to operate. It makes it easier for the big banks and harder for the small banks."
APRA and Reserve Bank of Australia have announced a range of measures intended to slow lending, cool over-heating property markets, reduce speculation and reduce the number of investors.
They include a 30 per cent cap on the proportion of mortgage loans that are interest only and a 10 per cent annual cap on mortgage investment lending.
Other lenders recently hit by the caps include CUA, the nation's largest cooperative, and Teachers Mutual Bank.
The Productivity Commission, the nation's competition tsar, is currently reviewing the banking and financial services sector.
Smaller banks, including Bank of Queensland, Suncorp and Bendigo Bank, are claiming macroprudential rules are effectively "locking in" market share at current levels, leaving smaller banks few options to challenge the dominant position of the major banks.
They are calling for APRA to worth with them to design more flexible rules that encourage prudential lending without inhibiting competition, increasing red tape and costs.This article was first published by http://www.afr.comAuthor: Duncan Hughes