In an address to the Customer Owned Banking convention on the Gold Coast yesterday, Mr Byres said the mutual bank sector, with $129 billion of assets and the “sixth largest ADI in Australia” behind the majors and Macquarie, should be looking to offset competitive headwinds through investing in new technology.
He said the sector will need to meet changing consumer demands, boost operational resilience and head off cyber threats.
“We are at times accused of neglecting competition in our zest for stability,” Mr Byres said.
“Those comments sometimes overlook a number of steps we have taken in recent years with a competition perspective firmly in mind.”
Despite smaller banks having superior product pricing in comparison to the big four, Mr Byres said, the scale and brand recognition with the big four, “coupled with significant customer inertia,” are difficult to overcome.
The measures APRA has taken that will foster competition, as listed by Mr Byres, fall into four different categories: promoting more active competition; avoiding undue costs on smaller competitors; lifting the burden on smaller ADIs; and lower supervisory intensity, by ensuring it is applied where it is most needed from a lower systemic risk perspective.
These entailed steps such as making the licensing regime easier to navigate for new entrants.
APRA said it was also tailoring certain requirements to be less stringent for smaller institutions, including those for remuneration, reporting time frames as well as avoiding including smaller institutions in thematic and industry-wide supervision activities and imposing loss-absorbing capital requirements on the majors only.
Mr Byres noted there were more new ADIs approved in the past year than in any year in the past decade and a half, including five domestically owned banks.
Four of those five banks were neobanks: Xinja, 86 400, Volt and Judo have all gained ADIs in the past 18 months.
There are now 89 other domestic ADIs, in contrast to 117 five years ago.
APRA has also proposed changes to the capital framework for ADIs, which has required the larger banks to build up capital, but won’t do the same for the mutual sectors. It has also insisted its 2017 capital targets have not changed.
Mr Byres noted the Hayne commission presented opportunity for the mutuals sector, but he warned there are headwinds ahead for the sector, including the current low interest rate environment.
“Smaller ADIs have developed some competitive advantages – the most critical of which is a far better reputation among consumers after the royal commission and other revelations of poor customer outcomes,” he said.
“This is contributing to the slow but steady erosion in the dominance of the majors. At the same time, the long-term decline in the share of the mutuals appears to have definitely ceased and albeit slowly, mutuals are starting to win back market share.
“For example, the share of housing loan approvals generated by the mutual sector is the highest it has been since the GFC, and broadly double that of a decade ago.”
