NAB’s Thorburn says regulating mortgage pricing ‘dangerous’

Banks and APRA have warned the introduction of tracker mortgages would intensify financial system risks.

National Australia Bank chief executive Andrew Thorburn.

The banking industry and the prudential regulator have warned the introduction of so-called tracker mortgages would intensify risks faced by the financial system, after Prime Minister Malcolm Turnbull hinted cabinet might consider legislating the products if recommended by the parliament’s bank inquiry committee.

Tracker mortgages — loans pegged to movements in the Reserve Bank cash rate or some other independent benchmark — were a focus of the house economics committee’s banking inquiry this month and have won support from ANZ chief Shayne Elliott and Australian Securities & Investments Commission chairman Greg ­Medcraft.

But National Australia Bank chief executive Andrew Thorburn yesterday said regulating pricing “would be a dangerous step”, a sentiment echoed by Australian Prudential Regulation Authority chairman Wayne Byres.

“We don’t fund our mortgage book off the cash rate — we never have,” Mr Thorburn told 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.

“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 Turnbull, who spoke on 3AW before Mr Thorburn, said introduction of tracker mortgages was “a question that needs further discussion”, noting that any recommendations from the house economics committee would be “very carefully examined”.

“(Tracker mortgages) appear to be one of the matters that is being considered,” Mr Turnbull said.

Mr Medcraft told a parliamentary oversight committee yesterday that tracker mortgages would benefit the banks because their franchises would not suffer every time they fail to pass on official rate cuts in full. Legislating to require banks to offer rate tracker mortgages was proposed by then-Greens leader Bob Brown in 2010 but did not pass the parliament.

“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.

“Sure it’s very nice if you could charge the customer whatever you want. I get that,” he said. “But I don’t think it gives them the benefit they think it does.

“Every time (banks) don’t pass on a rate increase or decrease, basically it creates an issue with their customers.”

Mr Turnbull said bank executives had done a “woeful job” of explaining their businesses despite their “vast armies of PR people and media advisers”.

“They’ve got a big issue about transparency and accountability and they should be more upfront, more regularly,” he said.

Mr Medcraft said introducing tracker mortgages, which are widespread in the US, would be an evolution for the banking industry and would bring Australia up to date with the rest of the world.

APRA’s Mr Byres told the committee tracker mortgages would have been introduced by the banks if they saw the product as attractive, adding there were additional risks because bank funding comes from a variety of sources, not just the benchmark rate being tracked. This would probably make loans more expensive.

Mr Byers noted some non-banks had offered tracker mortgages before the financial crisis, but the conceptual risks “became real”. He said he’d be concerned if the banks were forced to introduce the product.

Australian Bankers’ Association chief executive Steven Münchenberg said customers would end up paying more if tracker rates were introduced.