Morrison backs customer-owned banking reforms

Treasurer Scott Morrison has backed the entire proposed reform package for the banking co-ops and mutuals sector in an effort to further increase competition in banking and financial services.

The Hammond Review found a widespread lack of recognition and understanding of co-operatives, customer-owned banks and mutuals, which contributed to the sector's significant barriers to growth and access to capital to invest, innovate, grow and compete.

One of the 11 recommendations urged for co-operatives and mutuals to directly issue common equity tier 1 (CET1) instruments, typically used by the banks.

It urged for APRA and ASIC to facilitate the issue of capital instruments by prudentially regulating the sector, and developing minimum service standards such as an agreed process, framework and timetable for capital instruments proposed.

The review also recommends the Corporations Act 2001 should include a proper definition of 'mutual company' to deliver greater certainty for the sector, as well as changing the income tax legislation to assist mutual enterprises raise capital.

KPMG Australia financial risk management partner Michael Cunningham said an unintended consequence of Australia adopting Basel 3 in 2013 was that customer-owned banks were prevented by the Corporations Act from raising equity through capital instruments without demutualising.

"Unlike the publicly listed banks, mutual banks have not been able to raise Tier 1 capital to fund growth or invest in services, instead having to fund such activities from retained earnings or debt, which is obviously more restrictive," he said.

Cunningham added the creation of a new class of co-operative equity shares - which will not require voting rights to be attached, and allow dividends to be capped in line with mutual business models - could give mutuals funding flexibility and "raise billions of dollars in fresh growth capital" for the first time.

The Customer Owned Banking Association welcomed the Turnbull Government's recognition of the customer-owned model as a real alternative and an important part of the economy.

COBA acting chief executive Dominic Dunn said: "We have four million customers and $108 billion in total assets and we bring an unmatched customer focus to the retail banking market."

Dunn urged for a regulatory and legislative framework that accommodates customer-owned banking models, adding the association is excited about working with the government to implement the reforms.

Read more: Scott MorrisonDominic DunnKPMG AustraliaMichael CunninghamAPRAASICCOBACustomer Owned Banking AssociationHammond Review
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