David Littleproud opposes APRA shake-up for small banks

David Littleproud says the Nationals will ‘vehemently oppose’ a shake-up of banking liquidity and capital standards because it will ‘kill competition’ in the bush and advantage the big banks.

Member for Groom Garth Hamilton that “even by APRA’s own measures, there is no case for tougher regulation”. Picture: Nev Madsen

The Nationals leader has fiercely rejected a proposed shake-up by the Australian Prudential Regulation Authority of bank liquidity and capital standards, with the regional party warning that it could harm banking competition in the bush while enhancing the lending dominance of the big four.

In November, APRA issued a letter saying its proposed changes would primarily impact authorised deposit-taking institutions (ADIs) on the Minimum Liquidity Holdings (MLH) regime – typically smaller banks – to ensure they could endure a crisis, were prudently valuing their liquid assets and potential contagion risks were minimised.

The proposal swiftly sparked fears that mutual banks, credit unions and building ­societies could be forced to close, with the Customer Owned Banking Association saying it was “concerned the proposed changes will erode vital competition”.

The Liberal deputy chair of the standing committee on ­economics Garth Hamilton also raised concerns in the joint party­room meeting on Tuesday about the proposed shake-up, along with his north Queensland colleague Warren Entsch.

Nationals leader David Littleproud told The Australian on Thursday that the rural party would also “vehemently oppose this proposal by APRA because it will advantage big banks over ­regional banks and small ­mutuals that will kill ­competition”.

“We need policy that responsibly creates more competition in the banking sector, not less, and the parliament should be prepared to work together to ensure this is achieved if required,” Mr Littleproud said.

Mr Hamilton seized on recent figures compiled by APRA to challenge the need for the ­proposed overhaul, noting that the MLH ratio for small and less complex ADIs increased by 0.4 percentage points over the December quarter to 17.7 per cent.

Nationals leader David Littleproud. Picture: Penny Bradfield/AUSPIC/DPS

“This remained well above the regulatory minimum of 9 per cent. The increase reflects higher levels of certificates of deposits and at-call deposits held by the ADIs,” APRA said in its performance statistics update.

Mr Hamilton told The Australian that “even by APRA’s own measures, there is no case for tougher regulation”.

“Liquidity levels of customer-owned banks are above regu­­latory requirements and NIMs are comparable or better than the big banks,” he said.

“This isn’t intervention, it’s gross over-reach.”

In a letter to Jim Chalmers on May 31, Mr Hamilton said the proposal from APRA appeared to “contrast” with some of the findings of the final report of the standing committee on economics into economic dynamism, which was chaired by Labor MP Daniel Mulino.

The committee report found that “improving the level of ­competition in Australia’s ­banking sector is critical to ­improving the overall dynamism of the economy and for ­improving outcomes for ­consumers”.

It also noted that Australia had a “concentrated banking system”, with the committee saying it was “troubled by the significant difference in profitability between the major banks and the smaller banks”.

“For smaller and customer-owned banks, the obligations of regulatory compliance could force them to direct resources away from areas of natural ­competitive advantage, such as customer service, innovation, and attractive product pricing,” the committee said.

“This situation does not reflect well on competition in ­Australia’s banking sector.”