Australia
The following data have been gathered by Capgemini and are part of the World Retail Banking Report published annually in March.
Macro economic indicators (2007)
| GDP at current prices and PPP | € 999 billion |
| Inhabitants | 21,422 million |
| GDP per head | € 46,666 |
| Economic growth rate | 3.3% |
| Consumer confidence indicator | 112.5 |
| Unemployment rate | 4.1% |
| Consumer price index | 160.1 |
| Consumer price index annual change | 3.0% |
| Banking staff | 138,000 |
| Number of branches | 5,264 |
| Number of ATMs | 25,681 |
| Households savings ratio | 3.20% |
| Inflation rate | 3.0% |
| Interest rate for consumer credit | 11.67% |
| Interest rate for residential mortgage | 7.93% |
| Interest rate on 10 years bonds | 6.44% |
Type and size of players
Net banking income (million AUD) & Cost to income ratio (%)
Figures represent consolidated results for year ended Dec 2007
Net Banking Income = interest income + non interest income.
Cost Income Ratio = operating expenses / operating income.
The Net Banking income of all banks in Australia was AUD 88,407 million. The top 5 banks earned 60.8% of this income.
% Total resident assets
• There are 41 locally incorporated foreign banks and foreign bank branches in Australia, which account for 22% of total resident assets (up from 20% in 2006).
• Foreign entrants continue to have a small but stable market share in Australia. They are often a source of innovation in the banking sector forcing the major banks to replicate their product offerings. An example of this was the ING bank who introduced the Online Saver account. This was then replicated by all major banks albeit linked to a transaction account within their own bank.
Products
% Market Share
Figures represent results December 2007
Loans
• Out of the total lending pool of AUD 772.8 billion, 85.5% was mortgage related lending. This figure stood at 86% last year. This market continues to be one of the biggest income generators for Australian banks. However the mortgage lending market is starting to see a period of lower growth due to historically high interest rates and lower housing affordability especially in the main cites of Australia. This period of lower growth will see a consolidation of the mortgage broker market who have historically controlled 30-35% of the mortgage market at commissions that are 20-25% higher than the markets in the US and the UK. The slower growth rates will give an opportunity banks to re-negotiate these higher commissions with the mortgage lenders.
• The Australian market overall has seen an increase of 12.7% in the value of personal loans written for the year ending December 2007. 34 banks out of the 60 financial institutions are retail lenders. In 2006, 36 banks were in the retail lending business out of 59 financial institutions in total.
Credit cards
• The last year has seen an increase in “zero percent” balance transfer credit cards in the Australian market. Simultaneously, the “revert rate” i.e. the rate at which the balance reverts to after the six months has risen by an average of 0.75% to 1%. There has also been trend of increasing annual fees charged by credit card companies in the last financial year.
• The reason for the advent of these credit cards is the saturated credit card market. Each adult Australian has approximately 1.4 credit cards. At least 70% of Australians carry a balance on their credit cards, i.e. have not paid of the full balance every month and the average debt on an carried on an Australian credit card is approximately $3,100. This figure has been steadily rising over the previous years. These factors make this a very attractive market.
Trends
Regulatory changes
• In the last financial year the lending policies of the banks have not changed much. The more stringent lending policies are decisions that the banks have made themselves on the transactions that they will or will not support. The lack of any additional regulation could be due to the policies (either internal or by the RBA) already in place which seem to have shielded the Australian banks from much of the turmoil that has engulfed the banks in the US.
• Following on from the previous years, Australian banks are now focused on implementing regulation with regards to the AML/CTF legislation introduced in December 2006. We see that banks in Australia have moved from the planning stage of previous years to the implementation stage of the AML/CTF regulation. The implementation of this program typically involves intensive staff training and software implementation for monitoring requirements according to the regulation.
Consolidation
• Under Australia’s “Four-Pillar” policy, the top four banks in Australia are prevented from merging to ensure that there is competition in the Australian banking market. This puts the smaller banks in play by the top four looking for expansion via acquisitions. The falling financial sector stocks this financial year has presented a perfect opportunity for banks to acquire smaller rivals or companies that complement their business model. These acquisitions allow banks to selectively choose their targets and to continue on a growth path enhancing their earnings and improving efficiencies. This trend is gaining momentum this year due to the slowing growth and rising costs.
• The biggest announcement so far has been the Westpac-St George merger to which both banks have agreed to. The size of the deal is AUD 18.5 billion. We are also seeing mergers between mortgage brokers/lenders who as mentioned earlier control 30-35% of the market. With the downturn in the mortgage sector imminent these players are consolidating their resources and combining their bargaining power against the banks who want to reduce the influence of this channel on their revenue streams.
Channel strategies
• The ongoing battle for customer convenience and positive brand image is prompting banks to invest heavily in branch upgrades as mentioned in their annual reports. Although the number of branches of the major banks has not increased significantly over last year, branches are extending their operating hours to the weekends. The main reason for this is a move to a multi-channel strategy to fulfil more customer needs through the increase the number of “touch-points”.
• Banks are also trying to make the branch experience more appealing for the customer so as to retain high value mortgage customers directly rather than retain them through mortgage brokers. Mortgage brokers are entitled to a trail commissions paid over the life of the loan and other fees reducing margins
System changes
• The major Australian banks are replacing their core banking systems. The CBA has committed to spending close to AUD 580 million to upgrade five of its systems for home loans, deposits, term deposits, passbooks and customer information. NAB is investing close to AUD 1 billion to replace its core banking systems and the ANZ bank is undertaking a similar review.
• The technology architecture of the old systems cannot support the new customer centric strategies that are essential to retail banking. The staff costs are also increasing due to the lack of trained data-entry staff and IT professionals for the older systems. There is an increased cost associated with trying to integrate older systems with newer technology.
• We are also seeing that vendor maturity has increased to a point where banks can choose “best-of-breed” modules rather than having to purchase the whole software package.
• The review of the current systems gives banks an opportunity to look at green data centres that are more efficient. “Green IT” has now become an increasingly important topic for most Australian companies, given the impending start of the Emissions Trading Scheme in Australia which will tax excessive emissions of a company.
