Thursday, December 2nd, 2010
Australia’s second-largest credit union says it could cut mortgage rates if the Federal Government provided a level playing field for credit unions to compete with the banks.

Peter Evers - Managing Director of Australian Central Savings & Loans said current rules governing access to wholesale funds were penalising credit unions while benefiting the big four banks.

“The Federal Government has talked up its desire to see a Fifth Pillar in the form of credit unions and mutual societies as a true competitive force against the banks,” he said.

“However, our mutual status puts us at a disadvantage when we are trying to source funds to lend to borrowers.

“The wholesale finance market uses credit ratings as the yardstick by which it measures risk. Because the vast majority of mutual organisations do not have credit ratings, we are perceived as a higher risk and therefore incur an additional cost on the funds we are trying to source.

“That means we simply can’t raise funds on equal terms with the banks and, in turn, that affects our ability to be more competitive on our mortgage rates than we currently are.”

Mr Evers, who is the sole mutuals representative on the Financial Sector Advisory Council, said the Federal Government could introduce a mechanism to “level the playing field”.

“What we want the Government to recognise is that credit unions are regulated by the Australian Prudential Regulation Authority – just like the banks. We operate under the same rules and are subject to the same governance,” he said.

“Because we are an APRA-registered organisation, we should be given the same pricing as the big banks for wholesale funds.

“The Government should adopt that framework and stand behind it as a mechanism to allow credit unions and mutual organisations to access more competitive finance.

“Until that happens, we will remain at a significant disadvantage and the so-called Fifth Pillar will remain wishful thinking.”

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Marcus Laforgia

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fifth pillar, credit union, mortgage finance, australian central savings and loans



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