“Instead of scoring points by bank bashing the government needs to focus on the harder task of enabling a competitive environment in which more than four banks are able to compete effectively,” MyState CEO Melos Sulicich said at the company’s annual general meeting on Thursday.

His comments come after Treasurer Josh Frydenberg criticised the big four banks for failing to pass on the Reserve Bank’s three recent cash rate cuts in full to home loan borrowers and asking the ACCC to launch an inquiry into mortgage pricing.

Mr Sulicich said the government’s criticism failed to recognise banks needed to balance competing interests.

“Borrowers want the lowest possible interest rates on loans, depositors want the highest interest rate on their deposits and shareholders have a right to expect a reasonable return for their capital that facilitates the whole banking process,” Mr Sulicich said.

While none of the big four banks and very few smaller lenders passed on the October 25 basis point cut to borrowers in full, each of the major banks and many smaller lenders have passed on the entire 25 point cut to their savings accounts rates.

Mr Sulicich said not passing on the full rate cut to home loans was necessary to ensure the “sustainability” of the bank.

“We are operating in a low and falling interest rate environment, the likes of which we have never seen before. This is challenging and our recent decision not to pass on the full rate cut was necessary to ensure the sustainability of our business,” he said.

“With interest rates nearing zero and even moving into negative territory in some developed countries, it will be increasingly difficult for Australian banks continue to pay depositors positive interest rates for their money or a dividend that recognises investors’ cost of capital.”

Mr Sulicich said smaller banks are constrained by entrenched regulation that favours the bigger banks.

“Smaller banks’ ability to compete has been crimped as we need to hold more capital on the same loans and funding is more expensive,” Mr Sulicich said.

“In our opinion, the banking environment and competitive and regulatory landscape remains tilted away from smaller banks like MyState. We need to hold more capital than the larger banks for similar loans and the larger banks still receive funding cost advantages due to an implicit government guarantee. 

“This reduces smaller banks’ ability to earn a return and compete for customers. We continue to talk to the government and regulators to find ways to address this imbalance.”

Savings.com.au’s October rate cut tracker shows at least three lenders passed on the full rate cut to home loan interest rates this month.

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Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

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