Regional banks take gripe to Senate

Suncorp-Metway, the Bank of Queensland and Bendigo and Adelaide Bank are preparing submissions for the Senate inquiry which will be the first public review of the guarantee that was introduced in November to counter the global freeze in international debt markets.

The announcement of the inquiry was slipped out last week. It will look at the impact on the financial sector of both the funding guarantee and its counterpart for bank deposits. It is due to report in September.

The funding support has been largely welcomed by the industry for helping to keep credit flowing through the lending system, but it has been criticised by regional financiers for its different price levels, which make it more expensive for smaller banks to use.

For the double "A" rated majors Commonwealth, Westpac, National Australia Bank and ANZ that translates into a fee of 0.7 per cent above the market interest rate on the the debt they raise. But a single "A" rated bank like Suncorp pays 1 per cent, and the Bank of Queensland, with its "BBB" rating, is charged 1.5 per cent.

The regionals have argued they are already paying more to raise funds because of their lower credit ratings and the higher fees only add to their costs.

That has been one of the main reasons why the smaller banks have used the guarantee sparingly, but the overall industry has raise more than $100 billion in new short-term and long-term debt at a cost of more than $200 million in fees.

The Bank of Queensland will argue the pricing of the levy is "anti-competitive" and is helping the Big Four to offer lower-cost loans at the expense of the smaller institutions.

"It has created a very uneven playing field, making it difficult for regional banks to build shareholder value and at the same time remain a competitive alternative," BoQ's chief executive, David Liddy, argued in a speech last Friday.

Bendigo Bank said yesterday its borrowing difficulties meant it has had to ration funding to some parts of its business.