ING DIRECT, Australia’s fifth largest retail bank, today welcomed the Senate Economic Committee recommendations on bank competition saying the key recommendations would result in lower home loan rates.

The Senate today released a series of recommendations to improve competition and efficiency in the country's banking sector. One of these is that the interest withholding tax should be abolished as budgetary circumstances permit to increase the ability of foreign banks to compete in the Australian market.

ING DIRECT CEO, Don Koch said “If adopted, ING DIRECT would drop home loan rates by 10bps immediately and potentially more as the changes filter through.”

Mr Koch said that the abolishment of interest withholding tax would also open up new funding sources for banks.

“A critical driver for competition is a level playing field for funding and these recommendations go some way to addressing the current imbalances,” Mr Koch said.

ING DIRECT has more than 1.4 million Australian customers and has been competitive force in the Australian banking market for the past 12 years.

Exit fee ban will 'hit mortgage holders hard where it counts most'

Meanwhile, Australia’s largest independently-owned mortgage broker, Mortgage Choice said it strongly supports today’s Senate economic references committee recommendation that the Federal Government reconsider its plan to abolish exit fees on new home loans.

Non-bank lenders, which are vital to the health of a competitive lender market, raise funds at a higher cost to their banking counterparts and lack the same economies of scale. As such, exit fees are brought in to recover their reasonable costs should a loan be discharged early.

ASIC recognises this and made clear in November 2010 what it regards as a reasonable exit fee and what it regards as unconscionable. Mortgage Choice continues to support the guidance paper issued by ASIC at the time (Regulatory Guide 220).

The national mortgage broker lobbied the government last year to cease moving ahead with a home loan exit fee ban. In doing so, CEO Michael Russell wrote to Treasurer Swan:

“A unilateral ban on exit fees will have the unintended consequence of actually reducing lender competition by damaging the competitive offering of non-bank lenders and some second tier banks. These lenders have up until now only been able to compete on price by deferring or back-ending certain establishment fees. If this option is removed, then by default they would need to increase their customer interest rates and/or ongoing fees. The major banks would then be sure to follow or perhaps wait until the non-banks suffocated.

Mortgage Choice supports the guidance paper issued by ASIC (RG220) endorsing exit fees that represent a reasonable recoupment of costs upon the early termination of a loan. Smaller lenders would then be able to continue to compete on upfront interest rates and fees.