Thank you Chair.
I welcome the opportunity to provide an update on Suncorp’s program of work to deliver consistently good outcomes to our customers.
Suncorp Bank is part of Suncorp Group a proud Queensland-founded company, with its heritage dating back to 1902.
Our bank serves over one million customers across the country to invest in their future and grow.
As a regional bank we play a unique and important role in our society. Our customers, mostly mums and dads, farmers, and small businesses tell us they choose Suncorp because they value the meaningful relationships and service we deliver. We would like to do more but remain unfairly constrained.
One of the most important parts of my role is spending time with our Agri, SME and Property customers as well as front-line staff and mortgage brokers. It provides me with invaluable feedback and insight into the economy, reinforces the vital role we play in the lives of our customers and identifies areas where we need to improve.
The inquiries and reviews of the past 24 months have made it clear – the industry must do better.
Suncorp Bank is proud of our progress however, we know there are examples where we too have not been our best.
Today, we are on track with implementing new legislative requirements and are proactively addressing the outcomes of our risk governance self-assessment to APRA. This includes lifting our risk and compliance capability, making our performance on non-financial risks more transparent, strengthening our culture, addressing inconsistencies in remuneration and simplifying accountability.
We have and continue to improve our complaint management process. Our Board formed a Customer Committee in mid-2018 and our customer data and insights are now shared with the Committee so they can see first-hand our performance and progress.
We have also strengthened support for customers experiencing vulnerability. We have enhanced training for our front-line staff, created specialist teams and are working with community-based third-parties so our customers have the right support when they need it.
Before making some comments on competition – I want to inform the committee that after almost 14 years with Suncorp I will be departing next year to become Group CEO of RACQ. This opportunity is bitter sweet as I leave behind a committed and hard-working team who genuinely cares about our customers.
I would now like to address the Committee on the dynamic of competition in our industry – a topic that I am a passionate advocate for. Better competition will deliver better customer outcomes.
We support the Productivity Commission’s position that competition underpins economic efficiency, gives consumers choice, creates incentives for companies to innovate which enables them to win and retain customers while also reducing their costs.
Since the GFC, the major bank’s market share for mortgages has increased from 75 to 82 per cent. Over the same period, we have seen non bank-lenders grow disproportionately fast, accelerating further during the period of macro prudential controls on investor and interest only lending, and the out workings of the APRA Targeted Review into Responsible Lending.
Regional banks are being squeezed by regulatory advantages given to the major banks on one side, and to non-bank lenders on the other. Hopefully you have seen the Regional Banks’ statement this week. And I table it today. It details the inherent disadvantages built into Australia’s tiered banking system and their direct impact on consumers and competition.
We believe there are three key issues that must be addressed:
- Reducing the significant disparity in capital required for new mortgages, which is particularly prominent for the highest quality borrowers in other words lowest risk loans;
- The funding cost advantage afforded to domestic and international banks deemed “too big to fail”, which is even more acute during times of prolonged low interest rates;
- Delivering proportionality and consistency in regulatory change and supervision activity, that reflects the risk to financial system stability of different participants and reduces regulatory arbitrages between those regulated by both APRA and ASIC, and those regulated by ASIC alone.
Suncorp believes the most important issue to address, and arguably the simplest, is that of capital. Suncorp is required to hold up to six times more capital on the lowest risk mortgages compared to the Banks awarded “Advanced Risk Management” or “IRB” status, and, as best we can estimate, up to 12 or more times the capital the typically Private Equity owned non-bank lenders are holding for the same loan.
Even if our funding costs were the same, even if our regulatory costs and obligations were the same, for any given customer we are currently required to accept a materially lower return on the capital deployed than our large and our non-bank competitors.
Addressing the entrenched advantage held by both the majors and non-bank sector will improve competition and will deliver better customer outcomes for Australia’s savers, borrowers, small business owners, and farmers.
Thank you for the opportunity to participate today. I look forward to taking your questions and discussing some of these challenges.