ANZ Bank And The Australian Banking Sector

Payment and Clearing Systems

Discuss about the Financial Industry of Australian and New Zealand Bank and Commonwealth Bank of Australia.

In this paper more emphasis will be laid on banks. Australia has 53 banks 14 of which are predominantly Australian owned. They are all listed in the Australian Securities Exchange market either independently or through the parent company. In Australia there is no government owned bank. They are regulated by the Australian prudential Regulation Authority, APRA which provides information on the licensing and regulation of banking businesses. Banks have in recent times diversified into fund management and insurance.

The payment and clearing and settlement systems ensure the smooth functioning of financial institutions by ensuring safe, efficient and reliable services.  The categories of payment include cash transactions which consist of notes and coins  and are cleared through the Australian Cash Distribution Exchange System, paper transactions which include cheques and paper based instruments and are cleared by the Australian Paper Clearing System, direct entry and finally consumer electronics such as ATMs and smart cards to name just but a few.www.aima.australia.org .

 The retail banking sector in Australia has been growing with a reduction of the credit unions due to mergers, acquisitions purchase or conversion to banks. The four largest domestic banks in the Australian market are the Australian and the New Zealand Bank (ANZ), Commonwealth, National Australian Bank and Westpac Banking Corporation. The foreign banks in Australia normally conduct wholesale banking but the recent times has seen some diversify into retail banking. The top4 foreign companies include ING, HSBC, Citigroup and Robobank (Reserve Bank of Australia, 2016).

“Building a sustainable future for our business, shareholders, staff, customers, and communities. Achieve and maintain the highest standards of corporate governance and continuous disclosure.

“We want the best talent working at ANZ – no matter who they are – where they are from. Diversity of ideas and amorous experiences is key to our success” vision

Values: integrity, collaboration, accountability, respect and excellence.

ANZ bank is a public company with the vast of its operations in Australia and New Zealand. It is the 3^rd largest bank in Australia after commonwealth bank and Westpac by market capitalization. The largest part of its operations are in the Australian market and mostly handles commercial and retail banking. It is the largest bank in New Zealand. Its services include finance and insurance, consumer, corporate, corporate and investment banking, investment and global wealth management as well as credit card services, mortgages and private equity. ANZ has worldwide operations in 34 nations.

Retail Banking in Australia

ANZ was established in London as the Bank of Australasia under the royal charter. In 1852 the English, Scottish and Australian bank was formed in London and later in 1951 merged with the Bank of Australasia to form the Australian and New Zealand Bank ltd From this point on the ANZ bank undergoes change after change with opening of branches, representative offices, mergers and joint ventures, closing other branches as will be briefly discussed below.

In the 1960s it started operations in Honiara in the Solomon Islands, opened a representative office in Tokyo, japan and in 1969 opened an office in New York in the US. Its first computer systems was launched in the new data processing Centre in Melbourne. During the 70s it entered the largest merger in the Australian banking history with the English, Scottish and Australian Bank ltd to form the present day Australian and New Zealand Banking Group ltd. It started operations in Vanuatu and the Channel Islands, established representative office in Malaysia. It later established ANZ PNG, got incorporated in Australia and acquired the Bank of Adelaide in the 80s it acquired Grindlays bank and Barclays Operations in Fiji and Vanuatu, received full commercial banking license and opened a branch in Frankfurt Germany and opened representative office in Bangkok. Purchased Post Bank from New Zealand Government, (Hogan and Butlin, 1962).

In the 90s it was granted banking license in China and formed a joint venture with PT Panin Bank Indonesia which led to its becoming the first Australian broker to enter the Indonesian market. It entered a smart card joint venture with Mandex, Commonwealth Bank of Australia and Westpac. It launched VISA cash on the Gold Coast, rolled out its own website, www.anz.com, phone banking and master card and supermarket banking in the Gold Coast. There was a change in management in 1997 as John McFarlane succeeded Donald Mercer as CEO. In 1998 it delisted from the UK stock exchange and finally in 1999 started internet banking.

In the 21^st century it launched a new website www.anz.com>australia>aboutanz, entered a joint venture with the with the ING Group for funds management and life insurance business in Australia and New Zealand and received incorporation license for Vietnam. It rolled out mobile phone banking for iphones and android phones and a web based cash management platform. In 2008 it received trading membership from the Shanghai Gold Exchange to trade gold in the China market. It launched Bluenote, its corporate newsroom, a grow app, introduced a secure tap and pin ATM, ANZ go Money. It has been an advocate for women’s equality and actually was voted for Employer of Choice for Women for. The equal opportunity for women in the workplace

History of ANZ Bank

It is a multinational bank with operations in New Zealand, Asia, US and the UK> if offers retail banking, institutional banking, fund management, superannuation, insurance, investment and brokerage. It is the largest Australian bank listed on the Australian Stock Exchange and in the southern hemisphere. It has about 51800 employees as at 2017. It is the largest of the big four banks in Australia. It was founded in 1911 by the Australian government and fully privatized in 1996(commbank.com.au, 2015).

It was established in 1911 by the Commonwealth Bank Act 1911for savings and general bank business. In 1912 it established its first branch in Melbourne which traded through the Posta office agencies. In the same year it acquired the state savings bank of Tasmania. It started acquiring central bank powers in 1920 when it took over the issuing of Australian bank notes from the treasury department. In the same year it acquired Queensland Government Savings Bank. The New South Wales government transferred its savings bank business of the Government Savings Bank to the commonwealth bank. After the great depression of 1931 there was increased demand from Labor to reform the bank and give government more control over monetary supply. After WWII, in an emergency legislation, it acquired full central banks power. It used this power to fuel dramatic expansion of the economy. The government in line with this agenda expanded its immigration programs which led to the expansion of the Commonwealth bank which established hundreds of branches. Between 1958 and 1959 there arose controversies on the duality of the bank as a central bank and the central bank. This led to a split where it retained its commercial banking businesses and the central bank role was assigned to the reserve bank of Australia.

In the 1970s it diversified to insurance and travel. It established the Commonwealth Bank Finance Corporation, a finance company in 1974. This was involved in foreign currency trading and international banking. In the same year it rolled out the Bankcard, its first credit card, which was followed with the MasterCard in 1984 and Visa card in 1993. In 1981 it transferred its ownership of Solomon Island operations to the National Bank of Solomon Islands through a joint venture.  In the year 1991 it started the privatization process which was finalized in 1996. In 2000 it acquired full ownership of the PT Bank International Indonesia and the Colonial National Bank Fiji in 2006. In 2008 it acquired Bankwest and St. Andrews Insurances and sold the National Bank of Fiji to the South Pacific Bank.

Factors Affecting the Finance and Banking Industry

The Australian economy has managed to maintain its stability for quite some time now. There is a high level of enthusiasm and optimism amongst households and business entities. This is clearly established from the confidence index which is released by the Australian national bank. This reveals a higher confidence index than expected, it is currently 8. Interest rates have managed to remain low since august 2016 and is currently at 1.5%. The inflation rate on the other hand falls than the projected range of between 2 %and 3% to stand at 1.9%. And is especially favorable for business expansion. Consumer spending levels are higher (financed by rising debt levels rather than income growth). Inflation remains steady. Australia ranks as the 2nd wealthiest nation (wealth per adult) and ranks as the 13th nation in terms of nominal GDP. (Fletcher, 2018). Below we briefly discussed factors that affect the finance and specifically banking industry.

State of the economy

A healthy economy is most desirable in the financial sector. An economy’s performance is measured by the level of GDP. A higher GDP means there is increased spending and investment in the nation at that time by households, businesses and the government (Abel, Bernanke and Croushore, 2017). To finance the growing spending and investment, households and businesses seek out the financial sector players, banks in this case, to provide them with funds in return for interest payments on the loans. As a result the banking institutions get higher returns in economic boom.

Interest rates

Interest rates are a major player in the financial sector as they influence the demand for loans. Banks profits are obtained from the difference of the rate they charge borrowers and the rate they pay their depositors. Higher interest rates encourage more saving in the economy and less borrowing. This greatly affects banks as they now have to pay more to the depositors while they earn less from borrowers

Economic policies

These are policies implemented by the central banks of countries to regulate money supply thus influence the direction of the economy. An expansionary monetary policy is effected through lower interest rates. The lower interest rates increase the demand for money in the economy. As a result banks roll out more loans to the public which translates to higher interest revenues for the banks (Bikker and Gerritsen, 2017).

Inflation

Inflation acts to erode the real value of money. High inflation pushes interest rates up which weighs heavily on the business people as they are now required to pay more interest when they borrow. This raises the risk of loan default by borrowers. The banks spread is also affected as the higher interest they receive from borrowers they pass to the depositors. This coupled with higher default rates frustrates the banking industry (Riley, 2018). Inflation also affects the exchange rate.

Customer expectations

Customer expectations are always evolving. Customers prefer financial services that are more holistic. For banks to remain competitive they have to keep this in mind by seeking innovative products and ways in which to better serve their clients. Clients in current times demand services that can be accessed anywhere, at any time and with relative ease. They therefore seek out transparent banks with clarified structures that are aligned to their preferences (Genpact.com, 2014)

This section involves the analysis of performance of companies. The measures of performance include profitability, liquidity, solvency and operating efficiency (Finch, 2008).

Profitability ratios

These give the profitability of a company.

Return on total assets shows the amount of total income earned on the total assets of a company. It is 0.71 and 1.04 for ANZ and Commonwealth banks respectively. The higher ratio for Commonwealth indicates that it is more profitable than ANZ.

Return on equity explain the amount of total income earned on the equity. It is 10.97 for ANZ and 16.09 for Commonwealth.

Solvency Ratios

They show a company’s ability to pay its long-term debts. The debt equity ratio measures the level of debt used to finance a company’s activities (drake and Fabozzi, 2012). The smaller the amount the better. It is 0.3 for the two.

Efficiency Ratios

They show how effective the management is in its operations. The asset turnover ratio shows the revenue attained by the company on its assets. CBA is more efficient (0.03) than ANZ (0.02)

Liquidity Ratios

They demonstrate a company’s ability to meet its short term liabilities.

The current ratio measures current liabilities relative to current assets and is 4.898 and 0.273 for ANZ Bank Ltd and Commonwealth bank respectively. ANZ Bank is well equipped to meet its short-term debt obligation while Commonwealth isn’t as it is less than 1.

Conclusion

The finance sector is an important player in an economy and a very volatile one at that as even the slightest change in the economy affects its dynamics. It is necessary for the players to keep coming up with innovative products and ideas to ensure they keep up with the ever changing customer needs and increasing competition. The government should ensure a favorable environment through sound policies for ultimate productivity.

References

Abel, A., Bernanke, B. and Croushore, D. (2017). Macroeconomics. NY: Pearson.

Bikker, J. and Gerritsen, D. (2017). Determinants of Interest Rates on Time Deposits and Savings Accounts: Macro Factors, Bank Risk, and Account Features. International Review of Finance.

Commbank.com.au. (2015). About Us – Our company – History – The beginnings – Commonwealth Bank Group. [Online] Available at: https://www.commbank.com.au/about-us/our-company/history/the-beginnings.html [Accessed 24 May 2018].

Finch, N. (2008). Summary of Financial Ratios. SSRN Electronic Journal.

Fintech.treasury.gov.au. (2018). The strength of Australia’s financial sector. [Online] Available at: https://fintech.treasury.gov.au/the-strength-of-australias-financial-sector/ [Accessed 24 May 2018].

Fletcher, N. (2018). The Guardian’s share tips for 2018. [Online] the Guardian. Available at: https://www.theguardian.com/business/2018/jan/02/the-guardians-share-tips-for-2018 [Accessed 24 May 2018].

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Hogan, W. and Butlin, S. (1962). Australia and New Zealand Bank: The Bank of Australasia and the Union Bank of Australia Limited 1828-1951. The Australian Quarterly, 34(1), p.113.

Ibisworld.com.au. (2018). Finance – Australia Industry Research Reports | IBISWorld. [Online] Available at: https://www.ibisworld.com.au/industry-trends/market-research-reports/financial-insurance-services/finance.html [Accessed 24 May 2018].

International Monetary Fund. (2017). New Zealand: Financial Sector Assessment Program: Technical Note-Macroprudential Institutional Framework and Policies. IMF Staff Country Reports, 17(118), p.1.

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Riley, G. (2018). Inflation – Consequences of Inflation. [Online] Available at: https://www.tutor2u.net/economics/reference/inflation-consequences-of-inflation [Accessed 24 May 2018].