Regional banks dying a slow death

The Australian Financial Review04-15

Regional banks are paying about 30 to 40 basis points more than the big four banks when raising money in wholesale markets. This more expensive wholesale funding for regional banks has allowed the big...

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This more expensive wholesale funding for regional banks has allowed the big...</p>\n\n<a href=\"https://www.afr.com/companies/financial-services/regional-banks-dying-a-slow-death-20240414-p5fjmv\">Source Link</a>\n\n</div>\n","source":"afr_stock","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Regional banks dying a slow death</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nRegional banks dying a slow death\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-15 03:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.afr.com/companies/financial-services/regional-banks-dying-a-slow-death-20240414-p5fjmv><strong>The Australian Financial Review</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Regional banks are paying about 30 to 40 basis points more than the big four banks when raising money in wholesale markets. This more expensive wholesale funding for regional banks has allowed the big...</p>\n\n<a href=\"https://www.afr.com/companies/financial-services/regional-banks-dying-a-slow-death-20240414-p5fjmv\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"XAO.AU","symbol_name":"标普/澳交所 普通股指数","start_time":0,"source_url":"https://www.afr.com/companies/financial-services/regional-banks-dying-a-slow-death-20240414-p5fjmv","article_id":"2427501570","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2427501570","pubTimestamp":1713121200,"sourceInfo":{"source_id":"afr_stock","name":"The Australian Financial Review"},"weMediaInfo":null,"summary":"Regional banks are paying about 30 to 40 basis points more than the big four banks when raising money in wholesale markets. This more expensive wholesale funding for regional banks has allowed the big","collect":0,"end_time":0,"defaultTopTitle":"afr.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"XAO.AU":"标普/澳交所 普通股指数","XJO.AU":"标普/澳交所 200指数","BK7034":"财产与意外伤害保险","XKO.AU":"标普/澳交所 300指数","SUN.AU":"SUNCORP GROUP LTD"},"translate_title":"地区性银行正在慢慢消亡","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SUN.AU":0.9,"XAO.AU":0.9,"XJO.AU":0.9,"XKO.AU":0.9},"content_text":"Regional banks are paying about 30 to 40 basis points more than the big four banks when raising money in wholesale markets. This more expensive wholesale funding for regional banks has allowed the big four to entrench their competitive advantages.BoQ has a long-term credit rating of A minus from Standard & Poor’s and BBB plus from Moody’s Investors Service. Bendigo and Adelaide’s rating is A minus from S&P and Baa1 from Moody’s.While these are investment grade credit ratings, they are a couple of notches lower than the ratings for the big four which are AA minus from S&P and AA3 to AA2 from Moody’s.Due to historical reasons, BoQ is more reliant on wholesale funding than other banks. Customer deposits are 69 per cent of its funding compared with 75 per cent for the Commonwealth Bank.In a low-interest-rate environment there was relatively little difference in the cost of capital between the regionals and the big four. But once interest rates rose the regionals found it harder to garner deposits and paid more for wholesale funding.The wholesale funding disadvantage for regionals was highlighted by the Australian Competition and Consumer Commission last year.AdvertisementIt said the major banks were able to access three-year unsecured wholesale funding at a spread of 78 basis points above the three-month bank bill swap benchmark rate in May 2023, compared with 125 basis points for Bendigo and Adelaide and 105 basis points for Suncorp Bank.Over the years, regional bank CEOs and second-tier bankers such as Joseph Healy at Judo Bank have complained repeatedly about the higher capital requirements compared with the big four.But their calls for a level playing field have fallen on deaf ears.100-point disadvantageThe last time this columnist wrote about the issue, APRA responded with a sharply worded email claiming there was a “level playing field” between the big four, which use an internal ratings-based approach to risk-weighted assets and the regionals, which use a standardised approach.AdvertisementAPRA said it had levelled the playing field in three ways.First, it significantly increased capital requirements for internal ratings-based banks in 2015 in response to the 2014 Financial System Inquiry from an average of 16 per cent risk weight to at least 25 per cent.Second, in 2022 it updated the capital framework to provide additional support to competition in the industry.This reform imposed increased minimum capital requirements for advanced banks by 100 basis points more than standardised banks, reduced capital requirements for lower-risk mortgage lending by banks on the standardised approach; and introduced safeguards into the framework, including an overall floor on the difference between standardised and IRB requirements.APRA estimated that the average pricing differential for residential mortgages between internal ratings-based and standardised banks would be maintained in the order of 5 basis points. But this conflicts with the commercial reality experienced by regional banks.A typical mortgage loan written by a regional bank and a big four bank would have a funding disadvantage for the regional of about 100 basis points, according to analysis provided to The Australian Financial Review by regional bankers.AdvertisementThis analysis includes all the factors designed to level the playing field including the requirement for internal ratings banks to hold capital for interest rate risk in the banking book, an internal ratings bank scaling factor and higher minimum capital requirements for a big four bank.The analysis shows that for $100 of mortgage lending, a regional bank would have to hold $1.60 of capital whereas the big four banks would only have to hold 60¢.Suncorp sale made senseIt is possible for regional banks to move from the standardised approach to the internal ratings-based approach to risk weighting of assets, but this would involve investment of $50 million to $100 million. Given the other cost pressures facing regional banks, that is not a realistic option.BoQ admitted last year that it could not get an adequate economic return from writing mortgages, due to its higher cost of capital relative to its competitors. For this reason, it stood back from the market and its home loan book declined by about $700 million.It will be fascinating to see whether this decline in loans has continued in the first half of this year.AdvertisementThe more you analyse the competitive disadvantage faced by regional banks the more you realise how sensible it was for Suncorp Group to sell Suncorp Bank to ANZ Banking Group.Plenty of evidence about the lack of a level playing field was put forward last year during the regulatory reviews of the Suncorp Bank sale by the Australian Competition and Consumer Commission and the Australian Competition Tribunal.Now that the Suncorp Bank sale is going ahead (contingent on the treasurer’s final approval), there should be a windfall gain for ANZ from the adoption of the internal ratings bank approach to risk weights.Senior bankers believe this switch will mean ANZ will require about 20 per cent less common equity tier 1 (CET1) capital than the amount put aside by Suncorp Group. Suncorp Bank has about $3.4 billion in CET1 capital which suggests ANZ may release about $680 million in capital.The third competitive disadvantage for regionals is the escalating cost of maintaining the latest technology platforms for banking customers.BoQ is investing $440 million to upgrade its tech platform with the aim of being able to offer mortgage approvals in 15 minutes. If it can do this at scale it will be able to significantly lower its cost of doing business.AdvertisementThe ACCC investigation of the ANZ’s takeover of Suncorp bank exposed the high cost of tech upgrades including an insightful witness statement by Adam Bennett, the chief information officer at Suncorp Group and former senior CBA executive.Bennett’s analysis of the implementation of new technology platforms at major banks in Australia and overseas revealed the high risks involved and the heavy costs.The fourth issue for regional banks that harms their competitiveness is lack of scale. BoQ and Bendigo and Adelaide have about 2.5 per cent to 3 per cent market share, sitting just behind Macquarie Group at 5 per cent.Failure to achieve scale is the main reason why the United Kingdom banking market has recently gone through a wave of consolidation. That has reduced competitive choices for consumers.A similar outcome is likely in Australia if nothing changes. Treasury, the RBA and APRA need to ask themselves whether they are happy to ultimately have a financial services sector dominated by the big four banks and Macquarie.It will probably be easier to regulate fewer banks, but it will not necessarily be good for banking customers, particularly those living in regional areas served by BoQ and Bendigo and Adelaide.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2427501570"}