Major non-bank lender Firstmac’s future expansion plans are being thwarted by regulation which shuts out the ‘fifth pillar’ of the banking sector.
Firstmac, which has funded over $11 billion loans since 2002 and currently has a loan portfolio in excess of $5 billion, wants to become an Approved Deposit Taking Institution (ADI).
“This would not only place Firstmac on a more equal footing with its market competitors but would also deliver to the consumer the benefits of greater deposit price competition, product innovation and service,” said managing director Kim Cannon in Firstmac's submission to the Murray Inquiry.
However, the Firstmac Group is 100% privately owned, so is restricted in applying for an ADI license due to the 15% cap on individual ownership.
“No other country in the world imposes this ownership restriction which effectively acts as a barrier to entry for groups such as Firstmac wishing to transition,” the lender lamented.
While Firstmac understands APRA views the ownership limitation as a strength – it requires all substantial shareholders to be able to demonstrate a long-term commitment and ability to contribute additional capital – this approach rules out mutual credit unions and building societies that are unable to raise capital as their owners are members rather than shareholders.
“Despite talk of this sector forming the fifth pillar in the banking sector, the inability of the mutuals to raise capital to fund growth has largely eliminated them as a competitive force.
“Without access to capital the number of ADIs will continue to decline as a result of the need to consolidate to survive. True competition will not come from the existing ADI sector just as it wasn’t the ADIs that drove home loan competition in the 1990’s.”
The few non-bank home loan lenders in Australia are all owned either by individual entrepreneurs or small groups of entrepreneurs, and so the banking act and its shareholder limitations are stifling much needed competition in the banking sector, Firstmac said.
Firstmac thinks APRA should extend its regulatory oversight to the non-bank home loan lenders that also wish to compete in the retail deposit market.
The lender self-funds its operations through the release of highly-rated RMBS, which it declares on its website is a historically low-risk investment. It has publically issued over $12 billion in RMBS bonds since 2003.
Firstmac declared last year it intended to take a bigger slice of the broker market. It increased its footprint in December by acquiring an $80m portfolio of mortgages originated by Waratah Cooperative Housing Society.
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