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:
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.
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.
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.
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.
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).
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.
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.
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.
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