Australia Struggles to Spur Competition in Banking Sector

Chandrasekhar Atreya
14 Dec, 2010
New York City

Australian banks traded lower as the Senate inquiry focuses on the competition in the sector and the viability of small banks. The benchmark index edged higher. Spanish food giant EBRO makes a hostile bid for SunRice. Housing starts drops substantially in the September quarter.

[R]6:00 PM Sydney, Australia – Australian banks traded lower as the Senate inquiry focuses on the competition in the sector and the viability of small banks. The benchmark index edged higher. Spanish food giant EBRO makes a hostile bid for SunRice. Housing starts drops substantially in the September quarter.[/R]

The Sydney benchmark index closed a little higher today helped by rise in resource and energy stocks and bank stocks declined. The government is attempting to weaken the stranglehold of four large banks and offer access to cheaper funds to smaller banks.

The benchmark ASX 200 Index was up 9.8 points or 0.21% to close at 4,766.90.

The Australian dollar closed higher at 99.51 U.S cents in Sydney.

The scrapping of exit fees for mortgage loans will lead to higher interest rates from smaller lenders and will lead to a reduction in competition, according to the lobby group for the non-banking lenders.

The Mortgage and Finance Association of Australia, the lobbying body for non-banking lenders and home loan brokers said the policy framework issued by the government is likely to hurt smaller players who cater to only 3% of the market.

“They would have to put up their interest rates and if they do so, they would be no different from the rest of the lenders in the market,” Chief Executive Phil Naylor told a Senate inquiry in Sydney today.

In the meanwhile consumer group ‘Choice’ told the Senate inquiry that Treasurer Wayne Swan has done a reasonable job so far with his banking reforms but wants him to do more to improve competition.

In their testimony to the Senate inquiry into competition in the banking sector, the officials of the Australian Prudential Regulation Authority said Australian banks need to be part of a push to strengthen liquidity requirements, given their need for government assistance during financial crises.

Investors in Australia sold smaller banks stocks after Treasurer Wayne Swan released banking reforms and bid up the shares of the four big banks. The government plans to launch and education campaign to increase the public’s confidence and familiarity of smaller banks and credit unions.

Treasurer Swan has so far invested 16 billion in the residential mortgage market by purchasing the debt from smaller banks and offered to provide additional $4 billion to smaller banks.

Spanish food giant Ebro offered on Monday $600 million for taking over Australian rice company SunRice of the Murray-Darling rice basin buy had to face some tough questions from some of the farmers who own the firm through a two-tier share structure.

Ebro needs support of at least 75% of the growers with A-class share in SunRice and Ebro is offering $50,000 for each A-class share.

Housing starts in the September quarter fell 13.2% to 39,399 units, a substantial drop when compared to the previous quarter, according to data from the Australian Bureau of Statistics released today.

Business confidence declined in November after the central bank unexpectedly raised its benchmark interest rate for the seventh time in just over a year, according to a survey.

International Coal Ventures, a consortium of five Indian state-run companies including Steel Authority of India and Coal India, may bid for Riversdale Mining, according to a report in India’s Business Standard newspaper today.

Stock Movers

Shares of PanAust surged in trade after the company increased its production guidance for 2010 to around 67,000 tons of copper. Stock surged 10.74% to close at A$0.825.

AGL Energy shares fell sharply after it failed in its bid to win any stake in New South Wales power bids. The shares of AGL lost 78 cents to close at A$15.07.

In the banking sector ANZ was down 15 cents at A$23.95, while Commonwealth Bank lost 55 cents to close at A$50.65. National Australia Bank fell to A$24.51.

Bendigo & Adelaide Bank was lower at A$9.94 and Bank of Queensland lost 15 cents to A$10.82. Westpac was the lone gainer in the sector with a rise of 10 cents to close at A$23.00.

BHP Billiton added 21 cents to A$45.65, Rio Tinto gained 13 cents to close at A$87.90. Woodside Petroleum added 61 cents to close at A$43.36.