Australian Banking Royal Commission
Unless you have been living under a pretty big rock you would have been bombarded in all aspects of media about the current Banking Royal Commission. A decision was finally made by the current government in late 2017 that a Royal Commission into the Banking Industry be undertaken. The aim of the Royal Commission is to investigate the aspects of misconduct and corruption in Australia’s banking and financial services industry.What does this mean for everyday Australians?
The idea of a Banking Royal Commission is certainly not new, in fact, it’s been on the table since 2014 when there was a Senate Committee investigation into the Commonwealth Bank financial planning scandal – which effectively put the whole banking sector under the spotlight. Whenever there is uncertainty – sooner or later there needs to be clarity – this is the effective aim of the Royal Commission and although Australia has some of the best banking practices and guidelines in the world – issues needed to be raised and addressed.
Uncertainty and poor press resulted in stock prices falls and greater mistrust in the banks – the Royal Commission is hearing details and testimony of bank victims of poor and dubious practices. Here’s the big kicker – the expected cost is $75m – good news for a select group of lawyers and barristers.
What To Expect
It is unlikely to have a big impact on banking operations I believe that profitability and operations of the banks will remain stable whilst the Royal Commission is going – but the uncertainty and distrust of banks will continue – the biggest issue her the banks to deal with will be brand damage as well as standing in the international finance community which will likely result in tightening credit and reduced margins overall which effectively trickles down to affect consumers. Ther have already been various actions taken to address certain issues An example of this is that ASIC has had its powers increased by way of new legislation and compliance requirements, an improved customer complaint resolution system, and new legislation proposed to increase accountability for various types executives.Issues likely to impact the banks more than the Royal Commission
The Australian Prudential Regulation Authority (APRA) will be monitoring the banks and monitoring loose lending practices when determining loan serviceability of potential borrowers. This is the issue that will have the biggest effect on borrowers as well as the financial services sector as a whole. Prudential regulations are also requiring the banks to increase their Tier 1 ratios in order to shore up the banking sector and making it more secure within the economy.So – What’s next?
If we look at history and the results of other royal commissions – it can be argued that the spotlight will remain on the banking sector for some time to come, however, the net effect and changes will be relatively temporary and while lasting change is required – return to shareholders, the power of the finance sector and the universal ‘return to average’ type scenarios will mean much more of the same in the longer term. By this I mean – whilst loans have tightened up considerably in recent months due to tightening of credit but more importantly the way lenders assess things such as Household Expenses – in time – I would envisage loosening of such measures in the medium term because the banks will effectively be losing too much money – one will loosen a little then others will follow suit. A new paradigm will be developed to contend with new legislative and compliance provisions. One thing it does highlight is the need for mortgage customers to review their mortgages at least every 2 years as the industry and products are changing at such a rapid rate. Feel free to call to discuss your needs today. 