Tuesday, 15 February 2011

Lessons to be learnt on banking competition from down under?

Yesterday National Australia Bank, or nab as it now likes to be known as, declared that it was breaking up from the other three banks - Westpac, Commonwealth Bank and ANZ. It announced this in the social media, on Youtube and by flying a banner from a small plane over the Sydney skyline. (See http://breakup.nab.com.au/2011/02/sometimes-you-just-need-to-break-up-by-helicopter/ ). This was rather like whtat happens in schoolyards when a boy tells a girl that they are no longer an item when she didn't even know they were dating. However this announcement got nab lots of press attention and allowed them to make the appeal to the consumer base that they want to be different from the other three 'Pillars'. In practical terms what they have done simultaneously is declare that they won't charge mortgage termination fees (except for loans introduced by intermediaries, it has been pointed out) and they will pay the customer's termination fees from their rival banks if they move their mortgage to nab. Given that a customer's mortgage is second only to their current account for anchoring the customer to a bank, this seems to be a smart move, particularly considering that most customers won't have to pay a termination fee if they've held their mortgage for long enough, so it may not cost nab that much for what could be a significant gain. This follows nab not passing on the RBA interest rate rise to their customers last time round. Aggressive competition has broken out in the mortgage market.

Like the UK, the Australian banking market is under scrutiny about how truly competitive the banking market really is. Cynics might say that the nab move is a preemptive gesture before more stringent rules are imposed by the regulator. With the Independent Commission on Banking due to report in September the UK banks may want to consider what actions they should take before then to demonstrate that there is real competition in the UK market.

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