Aus­tralian banks out­per­form coun­ter­parts in Amer­ica, Eu­rope

Aus­tralia has a very sta­ble bank­ing sys­tem, per­haps bet­ter than those in the US and Eu­rope, and very early tech­nol­ogy in­duc­tion is one of the rea­sons:

Banking Frontiers - - Country Report - Mo­han@bank­ingfron­tiers.com

The bank­ing sys­tem in Aus­tralia has been found to be out­per­form­ing those in the other de­vel­oped coun­tries of North Amer­ica and Eu­rope and this has been on ac­count of Aus­tralian banks de­cid­ing to tran­si­tion to dig­i­tal ser­vices quite early. A re­cent re­search re­port by a global en­tity that de­vel­ops soft­ware for the bank­ing in­dus­try found that the top 10 banks in the coun­try, in­clud­ing Com­mon­wealth Bank, ANZ, Na­tional Aus­tralia Bank and West­pac, are of­fer­ing re­tail cus­tomers a wider range of ac­count prod­ucts on­line com­pared to their in­ter­na­tional coun­ter­parts. Aus­tralian banks had adopted dig­i­tal tech­nol­ogy quite early and the re­port sug­gests this has been one of the fac­tors why the banks in the coun­try have fared well. It also said per­haps the mar­ket is a bit smaller, it is a bit less of a risk and maybe eas­ier to im­ple­ment and so these banks have been fur­ther ahead. The re­port found that there had been ma­jor im­prove­ments in cus­tomer ac­qui­si­tion for per­sonal bank­ing prod­ucts, with a big in­crease in the banks’ abil­ity to of­fer prod­ucts via mo­bile plat­forms.

Be­sides, the Aus­tralian banks have pri­mar­ily fo­cused their ef­forts on the con­sumer and per­sonal bank­ing seg­ment in­stead of the busi­ness and wealth man­age­ment seg­ments, which is more com­pli­cated and re­quires more doc­u­men­ta­tion.

TOP BANKS

Aus­tralia has 53 banks, 14 owned by the gov­ern­ment. The top among these are Com­mon­wealth Bank, Aus­tralia and New Zealand Bank­ing Group (ANZ), Na­tional Aus­tralia Bank and West­pac Bank: Apart from tra­di­tional bank­ing ser­vices, the coun­try’s banks also pro­vide busi­ness bank­ing, trad­ing in fi­nan­cial mar­kets, stock broking, in­sur­ance and funds man­age­ment.

A multi­na­tional bank, Com­mon­wealth Bank is the largest in Aus­tralia and is also present across New Zealand, Fiji, Asia and the Us and the UK. Es­tab­lished in 1911 and head­quar­tered in Syd­ney, it em­ploys 52,000 peo­ple and has 11,000 plus branches. It of­fers a range of fi­nan­cial prod­ucts and ser­vices, in­clud­ing re­tail, busi­ness and in­sti­tu­tional bank­ing and wealth man­age­ment prod­ucts and ser­vices to some 16.6 mil­lion cus­tomers.

ANZ Bank is one of the old­est bank in the coun­try, founded in 1835. It pro­vides var­i­ous bank­ing and fi­nan­cial prod­ucts and ser­vices to re­tail, high net worth, small busi­ness, cor­po­rate, com­mer­cial, and in­sti­tu­tional cus­tomers. It also has in­sur­ance and funds man­age­ment busi­ness units, which of­fer in­sur­ance, in­vest­ment and su­per­an­nu­a­tion so­lu­tions. It op­er­ates in 34 mar­kets across the US, Eu­rope, Aus­tralia, New Zealand, Asia-Pa­cific and the Mid­dle East. Head­quar­tered in Mel­bourne, it em­ploys some 46,000 peo­ple.

Na­tional Aus­tralian Bank is the re­sult of a merger of Na­tional Bank of Aus­trala­sia and the Com­mer­cial Bank­ing Com­pany of Syd­ney in 1982. Head­quar­tered in Dock­lands, the ban has some 820 branches and is also present in New Zealand, the US, Asia and Eu­rope. It has some 35,00 em­ploy­ees and a cus­tomer base of 8 mil­lion around the world.

West­pac Bank is in fact the first bank that was es­tab­lished in Aus­tralia, way back in 1817, then called Bank of New South Wales. It be­came West­pac Bank­ing Cor­po­ra­tion in 1982 af­ter Bank of New South Wales merged with the Com­mer­cial Bank of Aus­tralia. To­day, the bank pro­vides prod­ucts and fi­nan­cial ser­vices through its five di­vi­sions - Con­sumer Bank, Busi­ness Bank, BT Fi­nan­cial Group, West­pac In­sti­tu­tional Bank and West­pac New Zealand. It has around 13 mil­lion cus­tomers, 33,000 staff and is head­quar­tered in Syd­ney.

Among the other lead­ing banks in the coun­try are Bank of Queens­land, Mac­quarie Bank, Bendigo Bank, AMP Bank, Sun­corp Bank and Bankwest.

RE­GION­ALS

Apart from the top 4, there is a group of five Aus­tralian-owned banks some­times re­ferred to as the ‘re­gion­als’, as they had a fo­cus on re­tail bank­ing in a par­tic­u­lar geo­graph­i­cal area. These banks are now ex­pand­ing their reach to dif­fer­ent ar­eas by us­ing loan bro­kers and the in­ter­net, and by ex­pand­ing their branch net­works across state bound­aries. These re­gional banks col­lec­tively ac­count for 8% of the to­tal do­mes­tic bank­ing sys­tem as­sets, at least one of them - St Ge­orge Bank - is the fifth largest Aus­tralian bank and in some ar­eas of re­tail bank­ing has a mar­ket share ex­ceed­ing that of some of the four largest banks.

FOR­EIGN BANKS

Aus­tralia also has 39 for­eign-owned banks, col­lec­tively ac­count­ing for around 20% of do­mes­tic bank­ing sys­tem as­sets. Some of them op­er­ate as lo­cally in­cor­po­rated sub­sidiaries, while others op­er­ate as branches. Some of these banks - like ING, Citibank, HSBC and

HBOS - have size­able re­tail busi­nesses as they tend to of­fer bet­ter de­posit rates on in­ter­net­based sav­ings ac­counts.

DEREGULATED SYS­TEM

Some 20 years ago, the bank­ing sec­tor in the coun­try was deregulated fol­low­ing what is called the Camp­bell in­quiry. Since then, there has been marked changes in the way bank­ing in­sti­tu­tions started op­er­at­ing and sev­eral bank­ing in­ter­me­di­aries came to be es­tab­lished even as the fi­nan­cial mar­kets be­came strong and deep.

Banks in the coun­try to­day ac­count for half of the to­tal as­sets of the fi­nan­cial sys­tem. Banks have di­ver­si­fied into funds man­age­ment and in­sur­ance. One sig­nif­i­cant de­vel­op­ment in the fi­nan­cial ser­vices do­main is the in­creased role played by su­per­an­nu­a­tion and other man­aged funds be­cause of the in­creased fund avail­abil­ity from su­per­an­nu­ated peo­ple in the coun­try.

Ex­cept for a small bank that is owned by a con­sor­tium of su­per­an­nu­a­tion funds, all the Aus­tralian-owned banks are listed on the Aus­tralian Stock Ex­change. There are no banks owned by the Aus­tralian gov­ern­ment. All the banks are su­per­vised by the Aus­tralian Pru­den­tial Reg­u­la­tion Au­thor­ity (APRA).

IN­SUR­ANCE UNITS

Al­most all of the Aus­tralian-owned bank­ing groups of­fer in­sur­ance and funds man­age­ment prod­ucts and this busi­ness has been prof­itable for many. Mac­quarie Bank is one bank that un­der­takes pre­dom­i­nantly in­vest­ment bank­ing ac­tiv­i­ties.

In ad­di­tion to banks, there are two other types of au­tho­rized de­posit-tak­ing in­sti­tu­tions in the coun­try - credit unions and build­ing so­ci­eties, which also pro­vide re­tail bank­ing ser­vices to their cus­tomers. Like banks, they are su­per­vised by APRA, and are sub­ject to broadly the same reg­u­la­tory re­quire­ments. The main points of dif­fer­ence be­tween them and banks re­late to their cap­i­tal and own­er­ship struc­ture. All credit unions have a mu­tual own­er­ship struc­ture where cus­tomers are also the ‘share­hold­ers’. Many build­ing so­ci­eties also have a mu­tual own­er­ship struc­ture.

There is one more type of fi­nan­cial ser­vices in­sti­tu­tion in the coun­try - ‘reg­is­tered fi­nan­cial cor­po­ra­tions’ - which con­sti­tute fi­nance com­pa­nies and money mar­ket cor­po­ra­tions and are also su­per­vised by APRA but also by the Aus­tralian Se­cu­ri­ties and In­vest­ments Com­mis­sion.

DIG­I­TI­ZA­TION

As dig­i­ti­za­tion has helped the bank­ing and fi­nan­cial ser­vices sec­tor in the coun­try to be com­pet­i­tive, new tech­nol­ogy and new ideas are con­stantly chang­ing and im­prov­ing the way trans­ac­tions are done. With the help of ar­ti­fi­cial in­tel­li­gence, banks are now help­ing its cus­tomers to elim­i­nate the hu­man in­ter­me­di­a­tion in ac­tiv­i­ties such as, say pre­par­ing a tax re­turn or man­ag­ing in­vest­ments. The cus­tomers too ex­pect their banks to be fully dig­i­tally ac­ces­si­ble. The days of crowded branches are no more there and vir­tu­ally ev­ery trans­ac­tion is now car­ried out us­ing ei­ther a smart­phone or a com­puter. There is now emer­gence of robo ad­vice ser­vices like Ig­ni­tion Di­rect and Acorns Aus­tralia that pro­vide au­to­mated on­line fi­nan­cial and in­vest­ment ad­vice.

WAY AHEAD

A re­cent study by PWC-Aus­tralia said 6 pow­er­ful forces are in fact shap­ing the bank­ing in­dus­try in the coun­try - chang­ing de­mo­graph­ics, tech­nol­ogy, con­sumer be­hav­ior, Asia, gov­ern­ment and sub­dued global econ­omy. It sug­gested that banks in the coun­try, in or­der to con­tinue cre­at­ing eco­nomic profit for share­hold­ers, should be­come sim­pler and smaller, but more deeply con­nected to cus­tomers than they have been in the past. To achieve this, the study has rec­om­mended 6 fun­da­men­tal pri­or­i­ties for the banks (i) ex­plic­itly or­ga­nize around the cus­tomer, (ii) sim­plify the of­fer, (iii) op­ti­mize the foot­print through­out the value chain, (iv) fo­cus on spe­cific ar­eas of in­no­va­tion, (v) proac­tively em­brace reg­u­la­tion and (vi) put cul­ture to work.

REG­U­LA­TION

Aus­tralia has a pe­cu­liar fi­nan­cial ser­vices reg­u­la­tory frame­work. The Coun­cil of Fi­nan­cial Reg­u­la­tors (CFR) is the co­or­di­nat­ing body for the coun­try’s main fi­nan­cial reg­u­la­tory agen­cies. A non­statu­tory body, its role is to con­trib­ute to the ef­fi­ciency and ef­fec­tive­ness of fi­nan­cial reg­u­la­tion and to pro­mote sta­bil­ity of the fi­nan­cial sys­tem. Its mem­ber­ship com­prises the Re­serve Bank of Aus­tralia (RBA), which chairs the CFR, APRA, the Aus­tralian Se­cu­ri­ties and In­vest­ments Com­mis­sion (ASIC), and the Trea­sury. In the CFR, mem­bers share in­for­ma­tion, dis­cuss reg­u­la­tory is­sues and, if the need arises, co­or­di­nate re­sponses to po­ten­tial threats to fi­nan­cial sta­bil­ity.

The Re­serve Bank of Aus­tralia has the re­spon­si­bil­ity for mon­e­tary pol­icy and for over­all fi­nan­cial sys­tem sta­bil­ity. It has no obli­ga­tion to pro­tect the in­ter­ests of bank de­pos­i­tors or other cred­i­tors of banks. Its task rather is to deal with threats to fi­nan­cial sta­bil­ity that have the po­ten­tial to spill over to eco­nomic ac­tiv­ity and con­sumer and in­vestor con­fi­dence. In the event of such threats, the RBA re­tains its dis­cre­tionary role of ‘lender of last re­sort’ for emer­gency liq­uid­ity sup­port. If it were to pro­vide such sup­port, the RBA’s pref­er­ence would be to make funds avail­able to the mar­ket through its do­mes­tic mar­ket op­er­a­tions. In cer­tain cir­cum­stances, how­ever, the RBA would be pre­pared to lend di­rectly to a fi­nan­cial in­sti­tu­tion fac­ing liq­uid­ity dif­fi­cul­ties. The in­sti­tu­tion would have to be one su­per­vised by APRA; would have to be sol­vent; and the fail­ure to make its pay­ments would have to pose a threat to over­all fi­nan­cial sys­tem sta­bil­ity.

The head of­fice of the Re­serve Bank of Aus­tralia

A self-ser­vice cen­ter of Com­mon­wealth Bank

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