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Connexus : Issue 36
Government reforms Meanwhile, the government has been promoting moves towards greater account portability (see Removing the Barriers, page 20) and a ban on home loan exit fees as part of a push for greater banking competition. Evers acknowledges the government's plan for former Reserve Bank governor Bernie Fraser to conduct a feasibility study into the timing and nature of full account number portability, but says building societies and credit unions can't delay. With customers reporting that it's a hassle to switch banks, it's up to mutuals to hold their hands. "We've got to prove we are different to the banks and we've got to help people make the change." Any government moves towards true account portability will take years to have an impact in markets, he says. "We can't wait for that. The probability of it being easily implemented administratively in the next three to five years is a huge ask." Magin says there are misconceptions in the banking community about how difficult it is to switch financial institutions. His building society uses a Fast Refi product that minimises the need for customers to do anything when switching. They aren't even required to wait for the bank to discharge the loan. "It helps dispel the myth that it's all too difficult," says Magin, who urges other mutuals to explore similar customer solutions. The government's move to abolish home loan exit fees is more contentious. At Deloitte, Hardy warns that the action may have unwelcome repercussions for smaller financial institutions. "We have to be careful to avoid a discussion that leads us to look at a mortgage like any other product, where it can be moved around on an annual basis. I'm not sure that's a healthy thing for our system." After all, Hardy says, those fees are in place to offset genuine administration costs, and credit unions will be less able to write them off. "In the context of a total mortgage, it doesn't hurt the majors in the same way it does the non-majors as a proportion of their total revenue base." Future funding Access to affordable funding streams has been the big issue for most financial institutions in the wake of the financial crisis. Sourcing competitive funding is still a major challenge for mutuals, says Hadley. He hopes the planets align around a range of potential solutions: reinvigorating securitisation markets; taking advantage of greater account portability to channel more funds from banks to mutuals; and extending access to the Australian Office of Financial Management program to buy residential mortgage-backed securities from mutuals. While CUA draws comfort from the fact that more than 70 per cent of its funds come from retail deposits, Hadley maintains it is imperative to have diversified funding options beyond that. Funding is not a major problem for all institutions. Ryan says IMB, throughout and since the financial crisis, has been operating at about 28-35 per cent liquid assets, "which probably puts us substantially ahead of most of the banks in terms of our liquidity". Nevertheless, he supports Australian Central Savings & Loans profit after tax for the first half of 2010-11 $19.3million FEATURE FUNDING connexus www.abacus.org.au 30 "There's been increased interest and switching, but on top of that we have been growing quite steadily anyway." -- IMB chief executive Robert Ryan