Australias Banking Industry 1
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Australias Banking Industry
Date: May 2011 Disclaimer This publication has been prepared as a general overview of the Banking Industry in Australia and does not constitute and is not intended to constitute financial product advice as defined under the Corporations Act 2001 (Cwth). Nothing in this document should be construed as a recommendation or statement of opinion intended to influence a person in making an investment decision. The information is made available on the strict understanding that the Australian Trade Commission (Austrade) is not providing professional advice. While all care has been taken in the preparation of this publication, Austrade expressly denies liability for any loss or damage of any nature (including but not limited to any errors or omissions) arising out of or connected with reliance on the contents of this publication. Any person relying on this publication does so entirely at their own risk. Austrade strongly recommends that the reader obtain independent professional advice prior to making any investment decision. Austrades role in the promotion of Australian trade includes facilitating engagement by Australian financial services exporters in markets outside Australia. Austrade is not a promoter of any financial services products or investments and does not provide investment advice. Austrade assumes no responsibility however so arising for any company, product or service mentioned in this document, nor for any materials provided in relation to such products, nor for any act or omission of any business connected with such products. Investors should always make their own enquiries as to whether an investment is appropriate for their needs and should consult an independent and licensed advisor.
ContentsExecutive Summary Australias Banking Industry Market Participants Banks Credit Unions Building Societies Non-Deposit-Taking Finance Companies Retail Banking Size and Scope Residential Mortgages Credit Cards Margin Lending Deposits Private Wealth Retirement or Superannuation savings Self-Managed Superannuation Funds Government Reforms Competitive and Sustainable Banking Commercial Banking and Corporate Finance Scope Market Participants Authorised Deposit-taking Institutions Boutique Advisory Firms and Securities Brokers Specialised Finance Companies Commercial Lending Syndicated Debt Project and Infrastructure Finance Trade Finance Corporate Finance and Advisory Mergers and Acquisitions Equity Capital Markets Debt Capital Markets Asset-backed Securities Kangaroo Bonds Over-the-counter and exchange-traded markets Transaction Services Payments System Operations Processing Regulation and Tax Environment Regulation of the financial system Overview Australian Prudential Regulation Authority Australian Securities and Investments Commission Reserve Bank of Australia Federal Treasury Australian Competition and Consumer Commission 5 6 9 9 11 12 12 13 13 14 15 16 16 18 18 18 19 21 21 21 21 21 21 22 25 26 28 30 30 30 33 36 37 39 40 40 44 44 44 44 45 45 45 45 Other regulatory agencies Summary of available operating models Overview Australian Credit Licence Available options Summary of requirements for each option The authorisation and application processes Australian financial services licences Introduction What is a financial service? What is a financial product? Retail and wholesale clients Other considerations Privacy laws Anti-money laundering and similar laws New laws to change the way to take security in Australia Taxation Summary Taxation of business profits Taxation treatment of funding options When is interest withholding tax payable? Exemptions from IWT Notional borrowing by an Australian branch of a foreign bank Deductibility of IWT Phasing down Australian IWT for financial institutions Special treatment for offshore banking units Thin capitalisation Useful Links Appendix A Banking Institutions Appendix B Credit Unions and Building Societies Appendix C Foreign Retail Banks in Australia Appendix D International Expansion of Australias Largest Banks Appendix E Selected Australian Legal and Accounting/Tax Advisors in Financial Services Appendix F Infrastructure Australias Reform and Investment Priorities Appendix G Capital Expenditure in Australias Mining Sector Appendix H Transaction Services Payments System Regulation Payments System Access Points Payment Settlements Future Trends 45 46 46 46 46 47 51 52 52 52 52 53 53 53 53 53 54 54 55 55 55 55 56 56 56 57 57 58 59 60 62 64 67 68 70 72 72 72 73 73
Australias Banking Industry
Australia ranked fifth amongst the worlds leading financial systems and capital markets in the 2010 World Economic Forum Financial Development report.
Executive SummaryAustralia has a strong, profitable, sophisticated and well regulated banking sector which is welcoming of new entrants and increasingly engaged in regional and global markets.The financial sector is the largest contributor to Australias national output, around 11 per cent of Australian output or A$135 billion of real gross value added in 2010.1 Australia ranked fifth amongst the worlds leading financial systems and capital markets in the 2010 World Economic Forum Financial Development report. Total assets of Australias banks, defined as Authorised Deposittaking Institutions (ADIs)2, were A$2.7 trillion. Australia has four large domestic banks (the four pillars) that provide full service retail and commercial lending to the Australian economy; Australia and New Zealand Bank (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), and Westpac Banking Corporation (WBC). Each has a AA rating (Standard & Poors) with only nine of the top 100 banks globally enjoying a rating of AA or higher.3 Foreign banks4 are also well represented in the Australian market with 20 of Forbes top 25 banking institutions having a presence in Australia. The majority of these foreign competitors are focused on commercial banking and capital market activities, although a number are now significant players in the retail banking market. Australias retail banking sector is relatively concentrated, with twenty one banks providing the bulk of banking services to consumers (12 domestic banks, 9 foreign owned subsidiaries). Consumer lending in Australia totalled A$1.3 trillion as at October 2010, of which the largest component is mortgage lending. While the major Australian banks have dominant market shares across most consumer finance lines, there is also increasing competition from foreign banks and regional Australian banks and competition from non-bank lenders (credit unions, building societies and non-deposit-taking specialist finance companies). Australias payments system has undergone, and continues to undergo, change designed to increase competition and innovation. Australians are early adopters of new technology, as reflected in the significant growth in electronic payments, EFTPOS and ATMs in the country. The commercial banking and corporate finance and advisory sector incorporates a full range of services provided to commercial, corporate, government and institutional sectors. Specialist expertise exists in mining and resources, infrastructure and project finance (including public-private partnerships), agriculture, and property. Competition in this sector includes the major and regional domestic banks, foreign banks, securities brokerage companies, specialised corporate advisory firms, and asset finance companies. Australias commercial and corporate advisory market comprises:
A$620 billion commercial lending market. A sizeable syndicated loans market that has raised US$336 billion over the five years to 2010, equivalent to 2.1 per cent of world issuance. The second largest project finance market in Asia-Pacific after India, with US$14.6 billion worth of deals in 2010, or 15 per cent of the regions total. The second largest free-floating stock market in the Asia-Pacific region, and sixth largest globally, with a capitalisation of US$1.1 trillion and 2,072 listed companies. One of the three largest Mergers and Acquisitions markets in Asia-Pacific, with announced deals totalling US$132 billion in 2010 and US$528 billion for the five years to 2010; 3.5 per cent of globally announced deals. The second largest Equity Capital Market in Asia-Pacific and fifth largest globally, with US$199 billion of equity issuance over the five years to 2010. A securitisation market that has resumed growth following the global financial crisis, with A$19.5 billion in RMBS issuance in 2010, up from A$9.9 billion in 2008. A fast growing Kangaroo bond market that has increased from A$9 billion to A$129 billion bonds outstanding over the ten years to October 2010 a compound annual growth rate of 28 per cent. The worlds seventh largest foreign exchange market with total FX turnover averaging US$192 billion per day in April 2010. The US$/A$ pair being the worlds fourth most traded pair after the Euro, Yen and Pound Sterling. The Asia-Pacifics second largest pension fund industry after Japan, at US$1,261 billion in 2010 and, by some measures the fourth largest globally.
Australias banking sector has sought to leverage the countrys strengths in natural resources, infrastructure, public-private partnerships, property and related capital market activities. Foreign banks operating in Australia have also been attracted by our reputation for product innovation, advanced capital and risk management systems, our highly skilled workforce and our proximity to key regional markets. Decisions have also been influenced by our political stability, strong rule of law, transparent and highly regarded regulatory environment, advanced social and economic infrastructure, and enviable lifestyle.
1. Australian Bureau of Statistics cat no. 5206.0 Australian National Accounts: National Income, Expenditure and Product, Dec 2010 (released 02 Mar 2011), Table 6, Gross Value Added by Industry, chain volume measured. 2. ADIs include banks, credit unions and building societies. 3. Ranked by The Banker, Top 1000 World Banks 2010, 6 July 2010. 4. Includes foreign banks with locally incorporated subsidiaries, a foreign bank branch licence or representative office. Australias Banking Industry >5
Australias Banking IndustryThe financial sector is the largest contributor to Australias national output, generating more than 10 per cent of Australian output or A$135 billion of real gross value added in 2010.5 As at February 2011, total assets of Australias banks,6 stood at A$2.7 trillion accounting for around 56 per cent of the total A$4.9 trillion in financial sector assets. This represents a compound annual growth rate (CAGR) of 13 per cent over the past decade.
Australias Financial Sector Assets September 2010 (A$ Billion)
General Insurance Ofces $134b or 2.7%
Securitisation Vehicles $141.6b or 2.9%
Life ofces, Superannuation Funds & Other Managed Funds $1,707b or 35.0%
Authorised deposit-taking Institutions $2,724b or 55.9%
Registered Financial Corporations $169b or 3.5%
Sources: Reserve Bank of Australia, Statistical Table B1, Assets of Financial Institutions (updated 1 Feb 2011); Austrade
Australia ranks 12th in the world in terms of bank assets as rated by The Banker, Top 1000 World Banks, December 2009. Among 21 countries surveyed by the Asian Bankers 500, Australia has the third largest pool of bank assets in the region after Japan and China. Australias total bank assets accounted for around 240 per cent of the countrys nominal GDP, well above Japan (193), China (178), South Korea (146), India (102), and the regional average (176).
5. Australian Bureau of Statistics cat no. 5206.0 Australian National Accounts: National Income, Expenditure and Product, Dec 2010 (released 02 Mar 2011), Table 6, Gross Value Added by Industry, chain volume measured. 6. Defined as Authorised Deposit-taking Institutions (ADIs), which includes banks, credit unions and building societies.
6 > Australian Trade Commission
The Asian Banker Top 500 BanksRank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Country Japan China Australia India Korea Hong Kong Taiwan Singapore Malaysia Thailand New Zealand Indonesia Vietnam Philippines Pakistan Bangladesh Sri Lanka Macau Myanmar Brunei Cambodia TOTAL Numbers of Banks in AB500 123 103 14 43 13 18 35 4 17 14 8 27 19 15 15 17 6 5 2 1 1 500 Total Assets (US$ Billion) 9,779.7 8,853.4 2,388.6 1,258.9 1,213.5 1,143.0 958.7 488.5 405.2 273.0 230.4 214.6 97.9 97.6 67.0 26.0 17.1 14.3 12.0 1.8 0.9 27,542.1 Regional Market Share % 35.51 32.14 8.67 4.57 4.41 4.15 3.48 1.77 1.47 0.99 0.84 0.78 0.36 0.35 0.24 0.09 0.06 0.05 0.04 0.01 0.00 100.00 Total Assets % of GDP 192.9 177.6 240.2 101.8 145.8 542.8 253.3 268.1 210.0 103.4 195.6 39.8 105.1 60.5 41.4 27.5 40.5 67.4 35.0 17.3 8.3 176.2 2009 GDP (US$ Billion) 5,069 4,985 994 1,237 833 211 379 182 193 264 118 539 93 161 162 95 42 21 34 10 11 15,633
Sources: The Asian Banker 500, Issue 101 October 2010; GDP data was sourced from IMF World Economic Outlook October 2010; Macau GDP was sourced from Statistics and Census Service Macau; Austrade
Australias four major banks are amongst the worlds 100 largest by assets and are four of only nine global banks with a rating of AA or higher by Standard & Poors. Moodys rating for the four major Australian banks is Aa2, with stable outlook (18 May 2011). Worlds 100 Largest Banks Credit Rating3,000Australias four major banks Assets US$ Billion (as of 31 December 2009)
0 AAA AA AAA+ A ABBB+ BBB BBBNR
Sources: This chart was sourced from the Reserve Bank of Australia Financial Stability Report March 2009, page 25, Graph 38, and updated with the 2009 data of banks assets from The Banker 1000 World Banks 2010 and Standard and Poors Credit Ratings (downloaded 27 July 2010) from Bloomberg; Austrade
The top Australian banks are also within the top 25 banking institutions as ranked by Forbes in its April 2010 top 2,000 companies.
7. The Banker, Top 1000 World Banks 2010, 6 July 2010.
Australias Banking Industry
The Forbes Worlds Leading Companies
Rank1 1 3 5 6 7 8 11 17 21 22 29 34 43 44 48 51 52 53 54 59 67 73 79 83 86
Company JPMorgan Chase Bank of America ICBC Banco Santander Wells Fargo HSBC Holdings BNP Paribas China Construction Bank Barclays Bank of China Lloyds Banking Group UniCredit Group Deutsche Bank Credit Suisse BBVA-Banco Bilbao Vizcaya Banco Bradesco Banco do Brasil Royal Bank of Canada Intesa Sanpaolo Commonwealth Bank Westpac Banking Group Crdit Agricole National Australia Bank ANZ Banking Toronto-Dominion Bank
Country USA USA China Spain USA UK France China UK China UK Italy Germany Switzerland Spain Brazil Brazil Canada Italy Australia Australia France Australia Australia Canada
Sales 115.6 150.5 71.9 109.6 98.6 103.7 101.1 59.2 65.9 52.2 106.7 92.2 63.0 50.3 49.3 59.1 56.1 35.4 50.7 31.8 31.2 92...