When the Federal
Government announced its current inquiry into the banking system it
said the overarching purpose was to deliver recommendations on “how
the financial system could be positioned to best meet Australia’s
evolving needs and support Australia’s economic growth.”
In this all-encompassing motherhood statement the concept of
competition was implied but not explicitly stated, although there was
a supplementary bullet point which said the inquiry should examine
“how we can best balance competition….with stability and consumer
As the committee, chaired by former CBA chief David Murray, continues
its deliberations with a deadline of reporting by November, it is fair
to suggest that in terms of business banking competition, this inquiry
will not deliver the shake-up experienced in 1981, when the Campbell
Report paved the way for an influx of foreign banks.
The reality is that in 2014 the horse has pretty much bolted in terms
of meaningful competition and – short of a seismic shake-up – anything
the Government can do will be tinkering at the edges.
Successive Governments of both political persuasions have all – in the
interests of supposed stability – protected the Big Four from takeover
while allowing them to swallow up the small regional banks which were
once the lifeblood of competition.
St George, BankWest and BankSA all at one time had significant
regional franchises, and today they are all brands operated by a Big
East’s market share figures reveal how, over time, the Big Four have
extended their stranglehold on business banking.
In the institutional segment, of the Top 500 companies, the Big Four
now hold 84.5 percent of primary transaction banking relationships.
Five years ago, it was 79.8 percent, with St George – then independent
– holding 5.7 percent.
In the mid-tier
corporate segment, of businesses with revenues of between $20 and 725
million a year, the situation is the same.
Today, the Big Four have 79.2 percent of primary transaction banking
relationships, with another 4.4 percent held by St George and BankWest.
So in reality that is an 83.6 percent market share. Five years ago,
the Big Four had 76.2 percent of these relationships and independent
BankWest and St George had 11.5 percent of the market between them.
It is a similar story in the corporate lending markets. Today, the Big
Four are primary lenders to 88.9 percent of corporate businesses – if
you include the 6.4 percent St George and BankWest shares – while five
years ago they had 74.2 percent market share, with the two independent
regionals holding 14.2 percent.
Dig down to the SME segment, of businesses with $5-20 million annual
turnover, and the Big Four – and subsidiary brands – have 87.5 percent
of primary transaction relationships, and 89.2 percent of lending
Given these figures, what can the inquiry recommend about competition?
It is hard to see the Abbott Government creating a new entity such as
Kiwi Bank in NZ, or giving a foreign player a leg up into the market,
given that foreign banks are already freely operating in Australia.
Any competition we can foster would seem to be in the niches, such as
the working capital and invoice discounting providers servicing the
SME sector, largely because the Big Four are not interested.
Through the global financial crisis the stability of Australia’s Big
Four banks helped the country weather the storm.
One question David Murray and his committee members are unlikely to
address, largely because the question is now largely irrelevant, is
whether the focus has been too much on stability at the expense of
The current situation might be good for Big Four banking profits, but
is it good for businesses and the wider economy?