The Treasurer Scott Morrison is planning to allow more than 50 smaller lenders to become banks in a move that could increase competitiveness and lower home loan rates.
Similar reforms have recently been implemented in the UK and it led to new lenders entering the market and caused major banks to match their lower mortgage rates.
New lenders that enter market may also be online-only banks providing a digital lending platform that do away with the need for bricks and mortar branches.
Scott Morrison said the organisations such as credit unions and building societies that would now be able to call themselves banks was aimed at increasing competition.
“Allowing more lenders to be called banks will mean better access to cheaper loans and more generous deposit rates for Australians,” he said.
“It will encourage smaller and online lenders to set up shop in Australia, offering more competitive loans and products to customers.”
“This is about giving Australians more opportunities to get a better deal for their home loan and their deposits.”
The changes are currently at the draft legislation stage. As it stands now, only lenders with more than $50 million in capital can call them self a bank.
Treasurer Morrison said despite the possible changes, all deposit-taking institutions in the country were still subject to scrutiny by the Australian Prudential Regulation Authority and that all deposits with registered lenders were protected by the government’s financial claims scheme guarantee.