At the current stage, the Australian bank sector controls approximately 79% of the country’s financial assets and is characterized by rapid growth over the past decades. For example, in 1998, assets controlled by banks were estimated at AUD586 billion. The Central Bank is the Reserve Bank of Australia (RBA).
There are about 200 banks in the Australian banking sector providing their services in the country, not counting the system of smaller credit unions. Four banks are commonly referred to as the “Big Four”. Their aggregate shares cover 65% of Australian deposits. They are:
- Multinational banking company ANZ
- Financial conglomerate Commonwealth Bank
- Financial institution National Australia Bank, NAB
- Banking Corporation Westpac
Australian banking and the state
Australia is one of few economically developed countries in the world where the state does not provide clear and ambiguous state guarantees in the financial force major circumstances. That is similar to the deposit insurance system (FDIC) in the USA.
There have been numerous cases of institutional failures in financial Australian history. Usually, in crises, the state or the Federal government “de facto” assumed monetary compensation obligations to depositors.
We can trace several stages in Australian banking emerge:
- Private banking (1817-1911)
- Commonwealth Bank epoch (1911-1957)
- Reserve Bank epoch (1957-1983)
- Deregulation processes (1983- till present)
In general, the country’s financial history reflects global trends. Numerous world tendencies have contributed to the constant improvement of the banking and financial system of the Australian continent. In particular, the need to deregulate the banking sector was caused by a series of bankruptcies in the seventies of the last century of such corporations as Mineral Securities, Mainline, Cambridge Credit, Associated Securities.
From 1983 to 1985, foreign banks received 16 licenses. The Australian dollar exchange rate was no longer subject to strict government regulation. AUD quotations were mainly determined by trading indicators in Forex.
As a result of competition between banks, a conservative risk management system was formed. Consumer and corporate loans fell in value. Such large multinational corporations as Citi Bank, HSBC, Chase Manhattan, Deutsche Bank, and other players have strengthened their positions in the financial services market. Thus, high international standards of service were ensured.
Australian banks play an important role in the country’s economy. They offer individuals and legal entities a wide range of financial services. It can be said that the banking sector bears a great social responsibility towards Australian society. Every year, public organizations receive financial support in various forms from banks for millions of dollars.
Projects related to free economic education and improving the financial literacy of the population are also actively sponsored. Australia’s national banking system is the third-largest source of GDP and has a successful policy of intervention in the financial markets of the entire Asia-Pacific region. Naturally, the popularization of Australia in international trade requires a lot of investment.
Mortgage lending
In recent decades, mortgage lending has been and continues to be one of the leading drivers of the country’s banking sector. Low inflation, low bank lending rates, and economic stability have boosted public enthusiasm for real estate investment. Leasing brings owners a constant cash flow, part of which is paid in the form of bank interest.
Economic stability gives investors a positive balance in the real estate sector, as well as confidence in the future. This fact encourages investors to maintain such a lucrative property. As a result, there is demand oversupply in the real estate market, which leads to the constant growth of real estate objects.
Such growth benefits all players in the real estate market from private investors to credit unions, banks, and building societies, which offer equity-based construction services in Australia.
Business lending by banks, in contrast to mortgage lending, is growing at a much slower pace. One of the reasons is the traditional practice of attracting business investments in the financial markets as IPOs or secondary placements against the background of the rapid growth of the companies´ profitability.
An interesting factor that in combination with other factors has increased the Australian banking system profitability is the increase in the funds share in bank accounts. This is not related to the payment of interest, no through the provision of additional financial services.
Banking and innovative technologies
The population actively manages finances through technological innovations in the sector: Internet banking, terminals (electronic money transfers at points of sale (EFTPOS), ATM networks, the ability to conduct transactions by phone, and relatively new mobile banking.
Traditional paper checks are still popular in the country as a payment method. In Australia, about 50 million checks are issued every month. Since the 1970s, the popularity of checks has plummeted, unable to compete with credit cards and the newly emerging electronic payment methods. For example, in Australia, there are 86 million credit card transactions and 73 million EFTPOS transactions every month.
The electronic national payment system BPAY has become widespread, uniting 180 financial institutions of the country. The system is similar to the ACH in the US. About 58% of BPAY transactions take place over the Internet.
The Australian banking system is enjoying a favorable macroeconomic environment and is improving through:
- streamlining operations, resulting in lower costs;
- consolidation, or mergers and acquisitions;
- further specialization;
- active use of outsourcing;
- entering financial markets of other countries in the Pacific region
Problems of the banking system
Problems in the development of the sector are associated with an increase in operational risks. An insufficient software quality related to the information systems security leads to an imbalance in risk management- That is: –
– frequent DDoS attacks;
– viral activity;
– poor software quality and hardware updates;
– phishing attacks to gain access to user accounts;
– insufficient degree of independent applicants verification for obtaining bank loans.
All these factors together lead to an imbalance in risk management. But those Australian banks that keep up with the international requirements of the financial sector can successfully cope with the growth of operational risks. This is where their great investment attractiveness comes from.
Investment is not only critical to expanding financial activities outside Australia but also to drive technological innovation to compete domestically. Time will tell which of today’s players will be the winner in Australia. The key to victory is to improve the efficiency and quality of the banking services.
