Competition in the Australian Banking Industry

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  • Topic: Bank, Banks of Australia, Banking
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  • Published : May 28, 2013
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Competition in the Australian Banking Industry
(2006-2012)

Table of Contents

Title Page ---------------------------------------------------------------------- 1 Table of Contents -------------------------------------------------------------2

Executive Summary ----------------------------------------------------------4

1. Introduction-----------------------------------------------------------------5 1.1 Australian Banking Industry
1.1.1 Major Banks / Four Pillars
1.1.2 Regional Banks, Credit Unions & Building Societies 1.1.3 Foreign Banks
1.2 Competition in the Australian Banking Industry

2. Performance Indicators ---------------------------------------------------8 2.1 Market Share
2.2 Three-Bank & Five-Bank Concentration Ratio
2.3 Herfindahl-Hirschman Index (HHI)
2.4 Net Interest Income (NII) & Net Interest Margin (NIM) 2.5 Profitability
2.5.1 Return on Average Assets (ROAA)
2.5.2 Return on Average Equity (ROAE)

3. Conclusion -----------------------------------------------------------------21

4. Bibliography ---------------------------------------------------------------22

5. Appendices -----------------------------------------------------------------24 Appendix I: Proportion of Major Bank Assets to Total Bank Assets Appendix II: Proportion of Other Bank Assets to Total Bank Assets

Appendix III: Net Interest Margin (NIM)
Appendix IV: Return on Average Assets (ROAA)
Appendix V: Return on Average Equity (ROAE)

Executive Summary

This business report aims to investigate the market share held by the 4 major banks in the Australian banking industry, and the competition that exists within the banking industry.

The data used in this report are mainly taken from several databases including Bankscope, KPMG, APRA, RBA and the prescribed textbook for the subject. Our stand is that the four major banks indeed hold a lot of power in the Australian banking industry, however the significant percentage of market share they hold has proven to benefit the economy, as seen during the Global Financial Crisis is 2008. This will be explored further in the report.

We faced some data limitations when doing the research for this report; hence we have narrowed down our list of selected banks.

Our stand is that despite the four banks having a lot of power within the banking industry, it has proved to be beneficial for the economy, especially during the global financial crisis in 2008. This will once again be expounded later in the report.

1. Introduction
The four major banks are one of the largest entities in Australia and make up a significant percentage of market share in the Australian banking industry. However, this may give rise to the problem of holding too much market share. The main purpose of this report is to determine if the big 4 banks hold too much power in the banking industry, and how the amount of market share controlled by each of the big bank affects the competition amongst the banking industry and ultimately profitability of each bank.

1.1 Australian Banking Industry
1.1.1 Major Banks / Four Pillars
The Australian banking sector is currently dominated by four major banks: Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation. The "big four" banks are in fact in the world's top 12 banks, due to recent collapses of large banking corporations. The top four banking groups in Australia ranked by market capitalisation at share close price 5 July 2011: Rank| Company| Market capitalisation|

1| Commonwealth Bank| A$79.86 billion[4]|
2| Westpac Banking Corporation| A$65.62 billion[5]|
3| Australia and New Zealand Banking Group| A$56.25 billion[6]| 4| National Australia Bank| A$54.54 billion[7]|
Source: Australian Banking Association...
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