NAB chief Andrew Thorburn warns of tracker loan ‘risks’

NAB says regulating loan pricing would be dangerous, as the PM branded banks “woeful” in explaining their business.

Andrew Thorburn appears before the parliamentary committee. Pic: Kym Smith

National Australia Bank chief executive Andrew Thorburn said regulating pricing “would be a dangerous step” after Prime Minister Malcolm Turnbull hinted that cabinet may consider legislating for so-called tracker mortgages if the bank inquiry committee recommends their introduction.

Mr Thorburn said the lender was “not keen” on the introduction of tracker mortgages — loans that are pegged to movements in the Reserve Bank of Australia cash rate or some other independent benchmark rate — which formed a large part of the parliamentary house economics committee’s banking inquiry earlier this month.

“We don’t fund our mortgage book off the cash rate — we never have. We have a range of funds that come from different sources that we pull together to lend out,” Mr Thorburn told Neil Mitchell on 3AW radio.

“We’re not keen on (tracker mortgages) because it does increase the risk for the bank because it links it to a rate that we do not fund off,” he said.

His comments came as the head of the corporate watchdog said a lack of competition in the Australian home loan market was preventing consumers from being offered tracker mortgages.

Australian Securities and Investments Commission chairman Greg Medcraft told the House of Representatives’ standing committee on economics that the loans would offer consumers clarity and transparent pricing.

“We’re in a market that is, frankly, an oligopoly ... I think the reason we don’t have them today is because there is a lack of competition,” Mr Medcraft said.

Mr Turnbull, who appeared on the 3AW radio show before Mr Thorburn, said the introduction of tracker mortgages was “a question that needs further discussion”.

“What I recalled from the hearing — a loan of that kind, the rate would unlikely be competitive or attractive to households,” Mr Turnbull said.

“Certainly the government hasn’t concluded a policy on that nor is it likely that we would do so in the course of an interview. I run a very considered cabinet government and we take these issues very seriously and we’ll consider them very seriously,” he said.

“Any recommendations that come from the house economics committee will very carefully examined. This appears to be one of the matters that is being considered.”

The support for tracker mortgages, which are commonplace in countries such as the US, has risen sharply in the wake of the parliamentary bank inquiry.

Mr Medcraft today suggested banks could simply adopt the same approach to retail products as they do to corporate.

“This is not a new concept. Corporate Australia has tracker loans called the bank bill rate,” Mr Medcraft said.

“They came about back when I was a banker in the ‘80s because corporates did not want to simply accept whatever the banks said was the rate. They wanted a true benchmark.”

Mr Medcraft said he understood the banks’ reasons for basing pricing on standard variable rates, but suggested banks need to take account of consumer anger at what is widely seen as a regular failure to pass on RBA cuts in full or in a timely manner.

“As a former banker who has funded mortgages all over the world, sure it’s very nice when you can charge the customer whatever you want - I get that,” Mr Medcraft said.

“But I don’t think that necessarily it gives them the benefit they think it does, because every time they don’t pass on a rate decrease it creates an issue with their customers. They don’t have the flexibility they think they do and it would take an issue away from the banks.”

But Mr Thorburn said tracker mortgages would increase the risks faced by the bank.

“Banking is a profession that’s got a lot of risk attached and I think you need to understand the complexities and therefore regulating pricing I think would be a dangerous step,” Mr Thorburn said.

Mr Turnbull said bank executives needed to face the scrutiny of the media and talk to the public on a regular basis, arguing they had done a “woeful job” of explaining their businesses.

“The banks, despite the fact they have vast armies of PR people and media advisers — probably more than the government — they have not done a very good job. In fact they’ve by and large done a woeful job of explaining their business,” Mr Turnbull said. “The banks need to be more accountable and chief executives need to get out there and actually explain their businesses.”

“The senior executives of the banks should be regularly doing programs like (this). They’ve got a big public perception problem. They’ve got a big issue about transparency and accountability and they should be more upfront more regularly.”

With AAP