Productivity Commission opening statement, Anthony Rose, CFO, Bank of Queensland

Thursday, 1 March 2018


Thank you Chair for the opportunity to speak to the Commission today following the release of your draft report. We intend to provide a second round submission that will more formally address your recommendations and findings. 

By way of background, BOQ was established in 1874. Today, it has a network of 190 retail branches across Australia. BOQ’s market share in mortgage and business lending is less than 2 per cent. Our unique franchise network of Owner-Managed branches form part of the two million small businesses contributing to the Australian economy. 

Competition versus Stability

BOQ notes the Productivity Commission’s findings that the benefits of competition have been reduced in the quest for stability and promoting an unquestionably strong financial system. The objectives of competition and stability are not mutually exclusive and should co-exist. 

The banking regulator APRA, has an important role to play in ensuring a competitive playing field, but we believe the ACCC as the competition regulator also has a role to play. We see merit in the ACCC being an additional member of the Council of Financial Regulators. 

Levelling the playing field

The playing field is not level and while there’s been some progress, more needs to be done to deliver a truly competitive market. 

There are four key areas of focus for BOQ:

  1. Risk weights;
  2. Funding costs;
  3. Transparency in the mortgage broker space; and
  4. The impact of regulatory change. 

Risk weights

The regulatory risk weighting framework has afforded the advanced banks a significant benefit over standardised banks. 

APRA’s lifting of the mortgage risk weight floor to 25% for advanced banks was a positive step, however, the remaining gap is still too large. For example, for every $2 of capital a major bank holds against a mortgage, BOQ holds around $3.50 of capital. We welcome APRA’s approach for more closely aligned risk weight calculations between advanced and standardised banks outlined in the discussion paper it recently released. 

We also welcome APRA’s consideration of applying the advanced bank floor to sub portfolios rather than at an aggregate level. Our position is that the floor should be applied at each standardised risk weighting bucket to deliver a more competitive environment across the full range of customer segments.  This approach would also enhance transparency and contribute to system stability, particularly in a crisis. 

Funding costs

The cost of funding is also an area of significant competitive imbalance, which we estimate to be in the range of 15 to 25 basis points between the majors and the regional banks.

The vast majority of this funding benefit is afforded through the implicit government guarantee of being seen to be ‘Too Big To Fail’. 

This implicit guarantee is explicitly evident in the credit ratings positions.  If we take S&P’s ratings as an example, the major banks have a credit rating 4 notches higher than BOQ – with 3 of those notches solely related to the implicit guarantee. 

BOQ supports the Government’s introduction of the Major Bank Levy. While the principle of the levy is sound, the 6 basis points represents a small proportion of the overall funding cost benefit enjoyed by the majors. 

Major banks have a tax-payer provided “insurance policy” in the form of ‘Too Big To Fail’ – and it’s appropriate they should pay the taxpayer an insurance premium for this, in the form of the levy.  The current levy is clearly less than the funding benefit that the major banks receive. 

Broker Transparency

We support the Productivity Commission’s findings for increased transparency in the mortgage broker market around ownership structure and flow of business relative to market share. 

In the past, brokers played a positive role in driving competition in the mortgage broking sector. However, the major banks’ ownership of broker platforms has had a profound influence in the flow of business back to the major banks. 

We fully support the Commission’s Draft Recommendation (8.1) that ASIC should impose a clear legal duty on those mortgage aggregators owned by lenders to demonstrate they have acted in the customer’s best interests. 


Finally, greater consideration needs to be given to the impacts on regional banks before any new regulations are introduced. 

In periods where there is a high degree of regulatory change, it has a disproportionate impact on regional banks who lack the same resources as of the larger players. 

A great recent example was the sensible pragmatism applied to the approach to defer the commencement of the Banking Executive Accountability Regime (BEAR) for small and medium ADIs.

I am happy to elaborate on these issues as well as other findings in the draft report in greater detail, and welcome your questions.