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Overview of Banking in Australia
- 3. The Local Market Deconstructing Banks Risks & Challenges FutureTrends
- 5. Source: ASX Major Bank’s comprise a Quarter of the ASX200 !!! 0 20 40 60 80 100 120 140 160 Billions Consumer Discretionary 6% Consumer Staples 7% Energy 4% Financials 36% Health Care 8% Industrials 7% Information Technology 1% Materials 16% Real Estate 8% Telecommunicati on Services 4% Utilities 3%
- 8. Australian-owned Banks Credit Unions Building Societies AMP Bank Ltd Australian Central Credit Union Ltd (trading as People's Choice Credit Union) My Credit Union Limited China Construction Bank Corporation B & E Ltd Australia and New Zealand Banking Group Limited* Bananacoast Community Credit Union Ltd Northern Inland Credit Union Limited Citibank, N.A. Big Sky Building Society Limited Australian Military Bank Ltd Bankstown City Credit Union Ltd Nova Credit Union Limited Cooperatieve Rabobank U.A. (trading as Rabobank) Maitland Mutual Building Society Limited Auswide Bank Ltd CAPE Credit Union Limited Orange Credit Union Limited Credit Suisse AG Newcastle Permanent Building Society Limited Bank Australia Limited Central Coast Credit Union Ltd Police Credit Union Limited DBS Bank Ltd Bank of Queensland Limited Central Murray Credit Union Limited Pulse Credit Union Limited Deutsche Bank Aktiengessellschaft Foreign Subsidiary Banks Bendigo and Adelaide Bank Limited Central West Credit Union Limited Queensland Country Credit Union Limited E.SUN Commercial Bank, Ltd. Commonwealth Bank of Australia* Coastline Credit Union Limited Queenslanders Credit Union Limited First Commercial Bank Arab Bank Australia Limited Community CPS Australia Limited (trading as Beyond Bank Australia) Community Alliance Credit Union Limited Railways Credit Union Limited (trading as myMOVE) Hua Nan Commercial Bank, Ltd Bank of China (Australia) Limited Community Mutual Ltd (trading as Regional Australia Bank) Community First Credit Union Limited Select Encompass Credit Union Ltd Industrial and Commercial Bank of China Limited Bank of Sydney Ltd Defence Bank Limited Credit Union Australia Ltd South West Slopes Credit Union Ltd ING Bank N.V. Citigroup Pty Limited G&C Mutual Bank Limited Credit Union SA Ltd Southern Cross Credit Union Ltd JPMorgan Chase Bank, National Association HSBC Bank Australia Limited Greater Bank Limited Dnister Ukrainian Credit Co-operative Limited South-West Credit Union Co-Operative Limited KEB HANA Bank ING Bank (Australia) Limited (trading as ING Direct) Heritage Bank Limited ECU Australia Ltd Summerland Credit Union Limited Mega International Commercial Bank Co., Ltd. Rabobank Australia Limited Hume Bank Limited EECU Limited (trading as Nexus Mutual) Sydney Credit Union Ltd Mizuho Bank, Ltd. IMB Ltd (trading as IMB Bank) Family First Credit Union Limited The Broken Hill Community Credit Union Ltd Oversea-Chinese Banking Corporation Limited Other ADIs Macquarie Bank Limited Fire Service Credit Union Limited The Capricornian Ltd Royal Bank of Canada Members Equity Bank Limited Firefighters & Affiliates Credit Co-operative Limited The Gympie Credit Union Ltd Shinhan Bank Co., Ltd Goldfields Money Limited MyState Bank Limited First Choice Credit Union Ltd Traditional Credit Union Limited Standard Chartered Bank MyLifeMyFinance Limited National Australia Bank Limited* First Option Credit Union Limited Transport Mutual Credit Union Limited State Bank of India Police Bank Ltd Ford Co-operative Credit Society Limited Warwick Credit Union Ltd State Street Bank and Trust Company Police Financial Services Limited (trading as BankVic) Gateway Credit Union Ltd WAW Credit Union Co-Operative Limited Sumitomo Mitsui Banking Corporation Police & Nurses Limited (trading as P&N Bank) Goulburn Murray Credit Union Co-operative Limited Woolworths Employees' Credit Union Limited Taiwan Business Bank QPCU Limited (trading as QBANK) Heritage Isle Credit Union Limited Branches of Foreign Banks Taiwan Cooperative Bank, Ltd QT Mutual Bank Limited Holiday Coast Credit Union Ltd The Bank of New York Mellon Qudos Mutual Ltd (trading as Qudos Bank) Horizon Credit Union Ltd Agricultural Bank of China Limited The Bank of Nova Scotia Rural Bank Limited (a subsidiary of Bendigo and Adelaide Bank Limited) Hunter United Employees' Credit Union Limited Bank of America, National Association The Bank of Tokyo-Mitsubishi UFJ, Ltd Suncorp-Metway Limited Laboratories Credit Union Limited Bank of Baroda The Hongkong and Shanghai Banking Corporation Limited Teachers Mutual Bank Limited Lithuanian Co-operative Credit Society "Talka" Limited Bank of China Limited The Northern Trust Company Tyro Payments Limited Lysaght Credit Union Ltd Bank of Communications Co., Ltd. The Royal Bank of Scotland plc Unity Bank Limited MacArthur Credit Union Ltd BNP Paribas UBS AG Victoria Teachers Limited (trading as Victoria Teachers Mutual Bank) Macquarie Credit Union Limited BNP Paribas Securities Services Union Bank of India Westpac Banking Corporation* MCU Ltd Canadian Imperial Bank of Commerce United Overseas Bank Limited Woori Bank Source: APRA 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sep2004 Dec2004 Mar2005 Jun2005 Sep2005 Dec2005 Mar2006 Jun2006 Sep2006 Dec2006 Mar2007 Jun2007 Sep2007 Dec2007 Mar2008 Jun2008 Sep2008 Dec2008 Mar2009 Jun2009 Sep2009 Dec2009 Mar2010 Jun2010 Sep2010 Dec2010 Mar2011 Jun2011 Sep2011 Dec2011 Mar2012 Jun2012 Sep2012 Dec2012 Mar2013 Jun2013 Sep2013 Dec2013 Mar2014 Jun2014 Sep2014 Dec2014 Mar2015 Jun2015 Sep2015 Dec2015 Mar2016 Jun2016 Sep2016 Dec2016 Share Of Assets Major banks Other domestic banks Foreign subsidiary banks Foreign branch banks Pre GFC ~ 67% Post GFC ~ 80%
- 9. Type of institution Main supervisor/ regulator Main characteristics Number of institutions Total assets ($b) Money market corporations (broker-dealers) ASIC Operate primarily in wholesale markets, borrowing from, and lending to, large corporations and government agencies. Other services, including advisory, relate to corporate finance, capital markets, foreign exchange and investment management. 14 65.3 Finance companies (including general financiers and pastoral finance companies) ASIC Provide loans to households and small- to medium- sized businesses. Finance companies raise funds from wholesale markets and, using debentures and unsecured notes, from retail investors. 108 129.7 Securitisers Special-purpose vehicles that issue securities backed by pools of assets (e.g. residential mortgage-backed securities). The securities are usually credit enhanced (e.g. through use of guarantees from third parties). – 138.7 Source: RBA
- 11. Bank Retail Lending Commercial Lending Regulators & Other (APRA, ASIC,ACCC, CRA’s, FOS, ABA etc…) Central Bank - RBA Shareholders Wholesale Funding Retail Depositors LIABILITIES ASSETS EQUITY
- 14. • Residential Lending the largest assets class ~ more than half of exposures • Commercial lending a distant second • Followed by other which is probably more commercial project finance etc… • Surprisingly the agri sector is not a big part of major banks partly due to strength of niche players like Rabo bank… Source: RBA
- 15. • Lending rates across residential and commercial have been coming down • Biggest driver is lower interest rates globally post GFC which has driven access to cheaper credit
- 16. Source: ANZ, WBC • IFRS changes will introduce more sophisticated forward looking approaches GRCL Losses that are expected but not certain over the full life of the loan (includes some collective as well) Collective Provision Based on 12m expected loss approach (EL = Exposure * PD * LGD) Specific Provision For loans that have already defaulted
- 18. • Funding profile has changed drastically post GFC to more deposit based as many banks had failed to operate with adequate liquidity and unprecedented levels of liquidity support were required in order to sustain the financial system. • Now enshrined through BASEL Standards such as Liquidity coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) with strict high-quality liquid assets (HQLA) definitions of what type of instruments can be used
- 19. Source: RBA, UBS Funding costs have been coming down post GFC with Majors having a distinct advantage
- 20. Source: RBA, Macquarie, S&P, WBC Popularity of Securitisation has waned considerably post GFC RMBS Delinquencies
- 22. • Capital is for protecting the banks against shocks outside what might be expected in normal conditions • Old rule of thumb - for every $1 of debt there is ~5 cents of equity capital • GFC revealed globally banks weren’t holding enough capital for the risks they were taking • Basel Committee on Banking Supervision (BCBS) introduced internationally agreed requirements for higher and better-quality capital for banks globally under the Basel III framework
- 23. Basel IV • Introduce Leverage Ratios, Capital Floors etc to improve Financial Stability • More disclosure to both markets and regulators • Improved comparability by limiting modelling choices • Simplify to standardised approach if IRB is not reliable 1988 Basel I SimpleT1 &T2, 8% capital to RWA 2006 Basel II Three pillar approach with more risk sensitivity & internal models 2010 Basel III Post GFC strengthened key risk and liquidity aspects Now Basel IV Further strengthening and closing gaps
- 24. Source: Suncorp Banks on Advanced IRB have an advantage over those using the Standard approach
- 25. Source: ANZ Advanced IRB allows more specific modelling across credit, operational and market risks
- 26. 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% Sep2004 Dec2004 Mar2005 Jun2005 Sep2005 Dec2005 Mar2006 Jun2006 Sep2006 Dec2006 Mar2007 Jun2007 Sep2007 Dec2007 Mar2008 Jun2008 Sep2008 Dec2008 Mar2009 Jun2009 Sep2009 Dec2009 Mar2010 Jun2010 Sep2010 Dec2010 Mar2011 Jun2011 Sep2011 Dec2011 Mar2012 Jun2012 Sep2012 Dec2012 Mar2013 Jun2013 Sep2013 Dec2013 Mar2014 Jun2014 Sep2014 Dec2014 Mar2015 Jun2015 Sep2015 Dec2015 Mar2016 Jun2016 Sep2016 Dec2016 Capital-adequacy ratio Tier 1 capital ratio Common Equity Tier 1 capital ratio Source: APRA Stats
- 27. Source: Company Data, UBS
- 28. 0% 10% 20% 30% 40% 50% 60% 70% Sep2004 Dec2004 Mar2005 Jun2005 Sep2005 Dec2005 Mar2006 Jun2006 Sep2006 Dec2006 Mar2007 Jun2007 Sep2007 Dec2007 Mar2008 Jun2008 Sep2008 Dec2008 Mar2009 Jun2009 Sep2009 Dec2009 Mar2010 Jun2010 Sep2010 Dec2010 Mar2011 Jun2011 Sep2011 Dec2011 Mar2012 Jun2012 Sep2012 Dec2012 Mar2013 Jun2013 Sep2013 Dec2013 Mar2014 Jun2014 Sep2014 Dec2014 Mar2015 Jun2015 Sep2015 Dec2015 Mar2016 Jun2016 Sep2016 Dec2016 AustralianADI NII & Expense Ratio's Non-interest income share Fee income to total operating income Cost to income Personnel to operating expenses Source: APRA Stats
- 29. • Despite the pressures on capital and income, Australian major banks remain amongst some of the most profitable although it has come down in recent years Source: RBA, UBS
- 31. Source: RBA, OECD,, BIS, UBS, Trading Economics Household debt as % of net disposable income Household debt as % of GDP
- 32. • A lot of concentration with the majors • Not good in the long term for the customer • Hampers innovation
- 33. • Slowing growth in traditional markets and economic weakness • Geopolitical risks • Increasing regulatory requirements • Conduct risk and remediation matters • Declining trust • Technology disruption
Editor's Notes
- this is largely because Australian banks are still a direct lender to business, where in say the US there is more disintermediation, i.e. sub BBB credits accessing the debt markets directly – not so much the case in Australia. We still have BBB and A credits borrowing directly from the banks. Also, the household debt in Australia is large relative to other nations.
- Bank structure Bus
- why the high house price/debt risks may be sustainable or move to a soft landing – vs what happened in the US GFC, given – personal guarantee for household debt, interest rate actions flowing directly to variable rate loans (70%+), incentive to pay down home loan debt given no tax deductibility, high population growth/immigration driving demand, and requirements to live in temperate capital cities (like Canada) with less home and job opportunities outside the capital cities