Bank of Queensland’s Opening Statement to the Productivity Commission’s Inquiry into the State of Competition in the Australian Financial System

Thursday, 29/06/2017


Thank you Chair for the opportunity to be here today and read a short statement.

By way of background, Bank of Queensland has been around for 143 years and has a network of 197 retail branches across Australia. Bank of Queensland’s market share in mortgage and business lending is less than 2 per cent. Our unique franchise branch network of Owners-Managers form part of the two million small businesses contributing to the Australian economy. Approximately 50 per cent of our business is in our home state of Queensland.

Bank of Queensland supports the Treasurer’s comments that Australia’s banking system must be competitive to ensure consumers get the right outcomes.

Australia has a highly concentrated financial services sector. The regional banks play an important role in both moderating the market power of the major banks and offering a viable alternative.

The market share of the four major banks has increased significantly since the Global Financial Crisis (GFC). Profitability of the major banks, as referenced by their Return-on-Equity (ROE), is higher than those of regional banks. This difference cannot be solely attributed to economies of scale.

In terms of competition, the playing field is not level and this is most evident through four key mechanisms.

First of all, changes to the capital requirements through the Basel II process implemented in 2008 provided a significant free kick to the major banks through their advanced accreditation status. For example, mortgages are a homogenous product and fundamentally carry the same risks. But as a standardised bank, we have to hold $3.50 of capital against every mortgage. The major banks only need to hold $2.00.

Second, the consequences of the GFC resulted in the Government’s implicit support to those banks that it considered ‘too big to fail’. This support provides the major banks with a substantial leverage in reducing their wholesale funding costs. This coupled with the recent Standard & Poor’s decision to downgrade our credit rating has made clear, it is a benefit we do not enjoy.

Third, over a longer time frame there has been a consolidation in the financial services sector through M&A. This has encouraged vertical integration in banking. A consequence to retail banking is that a number of major banks have a greater influence on the loans originated by mortgage brokers due to their direct ownership.

Finally, following the GFC there has been a significant increase in the number of regulations implemented across the banking industry. A strengthening of the regulatory framework is understandable given the risks. Nevertheless, the increase in regulations has a greater impact on regional banks that do not have the scale to absorb the rising costs of regulation and compliance.

I believe that Bank of Queensland’s history demonstrates that regional banks play a vital role in Australia’s banking industry. However, as a result of the pace of regulatory change, the industry environment has evolved to the detriment of regional banks. This has inadvertently provided a significant advantage to the major banks to maintain and grow market share. The inquiry by the Productivity Commission should, we suggest, seek to redress these structural imbalances so as to enable all consumers of financial services to benefit from a highly competitive market.

I am happy to elaborate on these issues in greater detail and welcome your questions.


For further information please contact:

Tracy Hicks
Head of Corporate Affairs, BOQ
Ph: 02 8222 2172
M: 0439 540 960