Small banks warn against AusPost solution to retreat from regional branches

The peak body for Australia’s mutual banks has weighed into the inquiry scrutinising the banking sector amid a pullback from the high street and community by big operators.

The peak body for Australia’s mutual banks has warned attempts to solve the disappearance of regional branches by handing Australia Post a banking licence, or banning banks from leaving towns, risk distorting the market.

In its submission to the Senate Economics committee, the Customer Owned Banking

Association has warned proposals to create a national bank as part of AusPost will not address broader financial access issues in regional communities.

COBA said competitive pressures on the big four banks “does not need to come from a new participant or a taxpayer subsidised government-owned entity”.

“A government-backed competitor, through an Australia Post Bank, will fundamentally disrupt the competitive banking landscape in Australia and lead to worse outcomes for the sector, particularly smaller institutions,” COBA said in its submission.

“The attractiveness of an Australia Post Bank with an explicit government guarantee for customer deposits would almost certainly reduce deposit flows to privately owned banks.”

COBA said AusPost would have an “outsized impact on customer-owned banks” as many relied on customer deposits as a funding mechanism, with customers likely to dump their cash at the AusPost bank.

COBA chief executive Mike Lawrence said customer-owned banks already “punch above our weight when it comes to support for regional Australia”.

“We don’t want to run the risk of being collateral damage,” he said.

COBA chief executive Mike Lawrence. Picture: Jane Dempster

Mr Lawrence said COBA was concerned over an attempt to impose a community service obligation on banks, blocking them from being the last bank to leave town.

He said this could encourage perverse incentives of banks fleeing a community amid fears they will be the last operation left on the high street.

“We’ve had a number of instances where the major banks have left the town and we remain as the last bank and we are basically used as a pass through,” Mr Lawrence said.

“The local community uses the customer-owned bank or mutual to deposit their cash and then have it transferred to where their online bank is.

“You have all that added cash handling which is problematic in rural centres for getting that cash out there.”

Politicians and unions have called on big banks to stop moves to shut a string of branches in rural, regional and suburban areas.

Westpac paused its plans to shut branches in eight towns in regional Australia in May, as the Senate inquiry into banking services moved to scrutinise the issue.

Mr Lawrence said the small end of the banking sector was already facing challenges of keeping its branches open, with higher costs from dealing with the same regulation applied to the big end of town.

“When you’re small there’s only so much that can go around,” he said.

Mr Lawrence said there may need to be a role for local governments to work with banks to ensure branches stay in towns.

“There is no one answer to this. We also know the behaviours of consumers are changing, there is a lot more banking done online,” he said.

“There’s no silver bullet here but there are issues that can be addressed.”