Australia Commercial Banking Report

8/10/2019 Australia Commercial Banking Report

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CONTENTS

BMI Industry View ............................................................................................................... 7

Table: Commercial Banking Sector Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Table: Commercial Banking Sector Key Ratios, November 2013 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Table: Annual Growth Rate Projections 2013-2018 (%) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Table: Ranking Out Of 71 Countries Reviewed In2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Table: Commercial Banking Sector Indicators, 2011-2018 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

SWOT .................................................................................................................................... 9

Commercial Banking .... ........ ...................................................................................................................... 9

Political ................................................................................................................................................. 10

Economic . .. .. .......................................................................................................................................... 11

Business Environment .............................................................................................................................. 12

Industry Forecast .............................................................................................................. 14

Rising Loan Losses And Regulatory Burdens To Increase Costs .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 15

Domestic Economic Weakness To Weigh On Revenue Growth .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 16

Industry Risk Reward Ratings .......................................................................................... 17

Developed States Commercial Banking Risk/Reward Ratings ........................................................................... 17

Table: Developed States Commercial BankingRisk/Reward Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Market Overview ............................................................................................................... 19

Developed States Commercial Banking Outlook ... .... .... ... .... .... .... ... .... .... .. ..................................................... 19

Table: Banks' Bond Portfolios, 2012 .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 19

Table: Comparison of Loan/Deposit & Loan/Asset & Loan/GDP Ratios, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Table: Comparison of Total Assets & Client Loans & Client Deposits (US$bn) .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 20

Table: Comparison of US$ Per Capita Deposits, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Macroeconomic Forecasts ......................................................................................................................... 21

Ongoing Misallocation Of Capital Increases Risks .... .... .... .... .... .... .... ........................................................... 23

Increasing Pressures For Greater Macro-PrudentialRules .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 24

Table: Australia - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Competitive Landscape .................................................................................................... 27

Market Structure .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 27

Protagonists ........ ........ ......... ........ ........ ........ ......... ........ ........ ........ ........ ......... ........ ........ ........ ......... ...... 27

Table: Protagonists In Australia's Commercial Banking Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Definition Of The Commercial Banking Universe ...... ........ ........ ........ ......... ........ ........ ........ ......... ........ ........ . 27

List Of Banks ......................................................................................................................................... 28

Table: MajorBanks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . 28

Table: Other Domest ic Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Company Profile ................................................................................................................ 29

Bendigo and Adelaide Bank ........ ......... ........ ........ ........ .............................................................................. 29

Australia Commercial Banking Report Q2 2014

Business Monitor International Page 4
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Table: Stock Market Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table: Balance Sheet (AUDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table: Balance Sheet (US$mn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

AMP Bank .... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 33Table: Balance Sheet (AUDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34


Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Westpac Banking Corporation ........ ......... ........ ........ ........ ......... ........ ........ ........ ......... ........ ........ ........ ........ 36

Table: Stock Market Indicators .................. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 37

Table: BalanceSheet (AUDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38


Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

National Australia Bank ... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 39

Table: Stock Market Indicators .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . 41

Table: BalanceSheet (AUDmn) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 41

Table: BalanceSheet (US$mn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 41

Table: Key Ratios (%) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 42

Commonwealth Bank of Australia ... ........ ......... ........ ........ ........ ........ ......... ........ ........ ........ ......... ........ ........ . 43

Table: Stock Market Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 44

Table: Balance Sheet (AUDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 45


Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . 45

Australia andNew Zealand BankingGroup .................................................................................................. 46

Table: Stock Market Indicators ....................... . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 47

Table: Balance Sheet (AUDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Table: BalanceSheet (US$mn) .. .. .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . 48

Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . 48

Global Industry Overview .................................................................................................. 49

Global Commercial Banking Outlook .......................................................................................................... 49

Regional Outlooks . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 50

Demographic Forecast ..................................................................................................... 54

Demographic Outlook .............................................................................................................................. 54

Table: Australia's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Table: Australia's Population By Age Group, 1990-2020 (% of total ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Table: Australia's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Table: Australia's Rural And Urban Population,1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Methodology ...................................................................................................................... 58

Industry Forecast Methodology ... .. ... ........................................................................................................ 58

Sector SpecificMethodology .................................................................................................................... 59

Risk/Reward Ratings Methodology .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 60

Sector Specific Methodology ........ ........ ......... ........ ........ ........ ........ ......... ........ ........ ........ ......... ........ ........ . 61

Table: Commercial Banking Risk/Reward Rating Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Weighting ............................................................................................................................................. 62

Table: Weighting Of Indicators .. .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 62


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BMI Industry View

Table: Commercial Banking Sector Indicators

DateTotal

assetsClientloans

Bondportfolio Other

Liabilities andcapital Capital

Clientdeposits Other

November 2012, AUDbn 2,967.0 2,028.3 137.5 801.2 2,967.0 192.0 1,714.8 1,060.1

November 2013, AUDbn 3,188.5 2,123.8 165.0 899.7 3,188.5 203.0 1,864.9 1,120.6

% change y-o-y 7.5% 4.7% 20.1% 12.3% 7.5% 5.7% 8.7% 5.7%

November 2012, US$bn 3,093.7 2,114.9 143.4 835.4 3,093.7 200.2 1,788.0 1,105.4

November 2013, US$bn 2,904.1 1,934.3 150.3 819.5 2,904.1 184.9 1,698.5 1,020.6

% change y-o-y -6.1% -8.5% 4.9% -1.9% -6.1% -7.7% -5.0% -7.7%

Source: BMI; Central banks; Regulators

Table: Commercial Banking Sector Key Ratios, November 2013

Loan/deposit ratio Loan/asset ratio Loan/GDP ratio GDP Per Capita, US$ Deposits per capita, US$

113.88% 66.61% 136.7% 67,433.6 72,841.1Rising Falling Rising n.a. n.a.


Table: Annual Growth Rate Projections 2013-2018 (%)

Assets Loans Deposits

Annual Growth Rate 3 2 5

CAGR 3 1 5

Ranking 60 68 57





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SWOT

Commercial Banking

Australia Commercial Banking SWOT

Strengths Strong fiscal accounts and plans for a pre-funded bail-out fund limit will help impact

on wider economy in the event of a financial crisis.

Increasing geographic reach in Asia Pacific markets.

Reserve Bank of Australia has put in place safety nets, such as the Committed

Liquidity Fund, to ensure sufficient liquidity in the financial system.

Weaknesses Banks rely heavily on overseas borrowing.

High exposure to bubbly domestic residential real estate market.

Opportunities Opportunities for overseas acquisitions, although concentrated nature of domestic

market and political considerations make further mergers at home unlikely.

Expansion into growing markets of Asia.

Threats General decline of asset quality as Australian economy slows and house prices

decline.

Further deterioration in Chinese economy could put pressure on the Australian mining

sector.

Dependence on external funding makes Australia vulnerable to a liquidity crisis.




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Economic

SWOT Analysis

Strengths A free-market economy supported by a highly educated workforce.

Blessed with rich natural resources, Australia's economic activity has been

augmented by demand for commodity exports and the investments made in the

mining sector.

Weaknesses The persistent current account deficit increases vulnerability to capital flows and, by

extension, currency volatility.

The export basket is highly concentrated in commodities, and consequently exposes

the economy and currency to fluctuations in world prices for metals, coal and

agricultural goods.

Opportunities The rapid expansion of Asian economies in recent years offers new opportunities for

diversifying trading ties from core European markets.

A low level of government debt has provided a certain amount of flexibility in fiscalpolicy to support domestic demand through the downturn.

Threats The high level of private sector debt - especially mortgage loans - fuelled by overseas

funding poses a threat to sustained growth.

A collapse in exports from a drop in resource demand from China and other resource-

hungry countries would severely impact headline GDP growth.

Australia is vulnerable to extreme weather that may lead to droughts and floods,

which have become increasingly severe in past years as a result of global climate

change.




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SWOT Analysis - Continued

reduce the attractiveness of these assets. It remains to be seen if the recent

implementation of a database to increase transparency around foreign-owned

Australian assets will spur more regulation.




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Industry Forecast

BMI View:We believe that the trend of strong profit and dividend growth will not be sustained in 2014 as

the sector's outperformance has been underpinned by declines in non-performing loans and growth in

mortgage lending, both of which are unlikely to persist amidst a quickly softening job market. Together with

the growing risk of greater compliance costs from increasingly burdensome regulation, we believe that the

reprieve from future interest rate cuts delivered by the Reserve Bank of Australia (RBA) will only be

temporary. Hence, we maintain our bearish outlook for Australian banking equities, expecting them to

underperform the broader equity index.

We maintain our downbeat outlook for Australian banking equities despite the positive earnings growth

reported by three of the four major financial institutions for the quarter ending December 2013. So far, all

three banks have reported greater declines in non-performing loans as a key driver of the strong financial

performance. Going forward, however, we see factors such as rising loan losses driving up costs, while the

weakening economy weighs on revenues as demand for credit declines.

Softening Job Market Suggests Non-Performing Loans To Rise

Australia - Job Market Indicators (LHS), Wage & Residential Property Index (% chg y-o-y)

Source: BMI, ABS




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Rising Loan Losses And Regulatory Burdens To Increase Costs

We believe that financial institutions are likely to see their cost increase, from both rising loan losses and

compliance costs. With joblessness on the rise and the pace of wage growth slowing to its lowest point since

the series begun in 1997, these indicators suggest that households' ability to repay may decline, making

further boosts to profits from lower loss provisioning for loans in 2014 unlikely.

Moreover, with greater regulation underway, we expect the costs relating to compliance to rise (for more

details see, 'Stability Concerns To Spur Regulation Drive', November 21 2013). Indeed, apart from the

Australian Prudential Regulatory Authority's keenness to implement liquidity reforms proposed under Basel

III framework (such as the Liquidity Coverage Ratio and Net Stable Funding Ratio which will raise the cost

of capital and funding for banks), the ruling coalition commissioned a sector-wide inquiry in December

2013. Within this inquiry, we believe that greater regulation is likely to emerge given the increasing

adoption of electronic payment systems and the use of virtual currencies (such as the Bitcoin). As such,

while the interest rate cuts that we forecast the Reserve Bank of Australia (RBA) to deliver could provide

some reprieve, we believe the boost will be temporary given the rising regulatory costs for the industry.

Highly Exposed To The Local Economy

Australia - % of Revenues From Australia For The Largest Four Banks

*Net revenues used due data limitations; Source: BMI, Various annual reports, Bloomberg




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Domestic Economic Weakness To Weigh On Revenue Growth

At the same time, the sector's high level of exposure to the domestic economy and limited overseas assets

suggest very little upside potential for earnings growth in the coming year. This is clear from results for the

fiscal year 2012/13 (July-June), where three out of the four major banks reported more than 79% of their

revenues from Australia (note: only net revenue data was available for Australia and New Zealand

Banking Group). Thus, given our expectations for domestic economic activity to slow further in 2014, we

expect credit demand to weaken, which suggests limited growth on the revenue side of the ledger. Together

with mounting costs, we maintain our downbeat outlook for Australian banking equities, expecting them to

underperform the broader equity index.




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Industry Risk Reward Ratings

Developed States Commercial Banking Risk/Reward Ratings

Commercial Banking Risk/Reward Rating Methodology

Since Q108, we have described numerically the banking business environment for each of the countries

analysed by BMI. We do this through our Commercial Banking Industry Risk/Reward Rating (IRR), a

measure that ensures we capture the latest quantitative information available. It also ensures consistency

across all countries. Like all of BMI's Industry Risk/Reward Ratings, its takes into account the Rewards on

offer within the banking sector in a given country, but also the Risks to investors being able to realise those

opportunities. The overall Rating is weighted 70% towards Rewards and 30% towards Risks.

Within the Rewards category, we look at factors that are specific to the banking industry (accounting for

60% of the score within this category), and elements that relate to that country in general (accounting for

40% of the weighting). These include, but are not limited to, total assets, asset and loan growth, GDP and

taxation. Likewise on the Risks side, we look at industry-specific Risks (weighted 40% of the Risks total)

and country-specific Risks (weighted 60%). These include, but are not limited to, the regulatory framework

and environment, the competitive environment, financial risk, legal risk and policy continuity.

In general three aspects need to be borne in mind when interpreting the IRRs. The first is that the Industry

Rewards element is the most heavily weighted of the four elements, accounting for 42% (60% of 70%) of

the overall Rating. Second, if the Industry Rewards score is significantly higher than the Country Rewards

score, within the Rewards category, it usually implies that the banking sector is (very) large and/or

developed relative to the general wealth, stability and financial infrastructure in the country. Conversely, if

the industry score is significantly lower, it usually means that the banking sector is small and/or

underdeveloped relative to the general wealth, stability and financial infrastructure in the country. Third,

within the Risks category, the industry-specific elements (i.e. how regulations affect the development of the

sector, how regulations affect competition within it, and Moody's Investor Services' ratings for local

currency deposits) can be markedly different from BMI's long-term Country Risk rating for a given market.




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Table: Developed States Commercial Banking Risk/Reward Ratings

Limits of Potential Returns Risks to Potential Returns Overall

Market Structure Country Structure Market Risks Country Risks Rating Ranking

Australia 46.7 85.0 93.3 78.0 68.6 28

Austria 56.7 75.0 86.7 80.0 69.6 25

Canada 80.0 85.0 100.0 80.0 83.8 4

France 86.7 82.5 93.3 74.0 84.0 3

Germany 80.0 82.5 93.3 80.0 82.3 8

Italy 76.7 72.5 93.3 70.0 76.3 13

Spain 73.3 77.5 86.7 68.0 75.1 15

Switzerland 73.3 95.0 96.7 82.0 83.8 5

UK 90.0 92.5 100.0 72.0 88.7 2

United States 93.3 85.0 100.0 82.0 89.8 1

Eurozone 93.3 77.5 66.7 48.0 77.5 11

Scores out of 100, with 100 the highest. Source: BMI




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Market Overview

Developed States Commercial Banking Outlook

Table: Banks' Bond Portfolios, 2012

Bond Portfolio, US$bn Bond as % total assets Year-on-year growth %

Australia 145.0 4.7 29.3

Austria 40.3 3.3 9.6

Canada 230.1 5.9 -8.3

France 828.7 8.3 0.1

Germany 1,469.0 14.4 -2.9

Italy 674.9 13.0 22.0

Spain 795.7 18.1 7.7

Switzerland 151.5 4.9 8.2

UK 244.9 1.9 -6.5

United States 533.5 4.1 18.4

Eurozone 2,001.2 5.0 16.6

Source: Central banks, regulators, BMI

Table: Comparison of Loan/Deposit & Loan/Asset & Loan/GDP Ratios, 2014

Loan/Deposit

ratio % Rank TrendLoan/Asset

ratio % Rank TrendLoan/GDP

ratio % Rank Trend

Australia 107.9 15 Falling 66.6 17 Falling 126.5 9 Falling

Austria 119.7 3 Falling 45.2 59 Rising 131.1 8 Falling

Canada 116.8 7 Falling 43.3 62 Falling 93.7 18 Falling

France 103.0 21 Falling 25.2 70 Falling 102.9 14 Rising

Germany 113.3 10 Falling 51.8 45 Rising 139.7 7 Falling

Italy 75.1 58 Falling 35.0 66 Falling 93.6 19 Falling

Spain 95.8 35 Rising 67.6 71 Rising 183.2 15 Rising

Switzerland 92.4 33 Falling 20.1 11 Rising 101.9 4 Rising

UK 87.4 41 Falling 67.4 12 Rising 295.0 1 Falling

United States 103.2 20 Rising 72.6 6 Rising 60.3 38 Rising




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Comparison of Loan/Deposit & Loan/Asset & Loan/GDP Ratios, 2014 - Continued

Loan/Deposit

ratio % Rank TrendLoan/Asset

ratio % Rank TrendLoan/GDP

ratio % Rank Trend

Eurozone 108.8 13 Rising 57.3 37 Rising 198.5 3 Rising


Table: Comparison of Total Assets & Client Loans & Client Deposits (US$bn)

2014 2013

Total Assets Client Loans Client Deposits Total Assets Client Loans Client Deposits

Australia 2,528.3 1,683.8 1,560.4 2,867.5 1,948.7 1,701.7

Austria 1,197.7 541.2 452.2 1,260.5 568.5 473.6

Canada 3,837.0 1,663.1 1,424.5 3,865.1 1,691.6 1,394.7

France 10,626.6 2,674.9 2,595.9 11,009.4 2,776.7 2,668.7

Germany 9,418.4 4,883.0 4,311.6 10,173.7 5,068.8 4,381.6

Italy 5,273.7 1,845.3 2,457.8 5,544.6 1,993.3 2,514.5

Spain 3,774.2 2,551.6 2,662.6 4,178.7 2,568.5 2,905.6

Switzerland 2,796.8 561.8 607.8 2,770.4 550.1 578.9

UK 11,918.2 8,032.2 9,193.7 11,978.1 7,921.3 9,022.3

United States 15,001.6 10,897.2 10,558.9 14,020.2 10,136.9 9,868.2

Eurozone 42,231.0 24,209.4 22,261.1 44,009.6 24,768.1 23,175.9


Table: Comparison of US$ Per Capita Deposits, 2014

GDP Per CapitaClient Deposits, per

capitaRich 20% Client

Deposits, per capitaPoor 80% Client

Deposits, per capita

Australia 61,782 66,035 264,138 16,509

Austria 49,197 42,429 212,145 13,259

Canada 52,363 40,097 160,390 10,024

France 42,127 40,159 160,637 10,040

Germany 42,978 41,733 208,663 13,041

Italy 32,787 40,246 160,982 10,061

Spain 30,061 56,571 226,283 14,143




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Comparison of US$ Per Capita Deposits, 2014 - Continued

GDP Per CapitaClient Deposits, per

capitaRich 20% Client

Deposits, per capitaPoor 80% Client

Deposits, per capita

Switzerland 67,106 74,507 298,029 18,627

UK 42,624 144,808 579,230 36,202

United States 56,067 32,732 130,930 8,183

Eurozone 37,018 66,511 266,045 16,628


Macroeconomic Forecasts

BMI View:Several domestic and external factors have served to boost the level of economic activity in

Australia. While we revised up our GDP growth forecasts for 2014 to 2.0% from 1.8% previously, this

change masks our concerns for the ever-growing risks within the Australian economy. Given that an

increasing proportion of capital is being invested in the housing sector despite the weak performance of

business spending, (a turnaround in which is required to generate wage growth), this misallocation of

capital increases the economy's vulnerability to external shocks, on top of the ongoing weakness in the

mining sector.

Since the September elections, the Australia economy has recorded an uptick in activity levels and business

sentiment from the lows recorded earlier in 2013, supported by both domestic and external factors.

Domestically, prospects of lower regulatory burden, ranging from taxes to various regulatory procedures,

have helped lift the outlook for certain industries, such as oil and gas. Moreover, September's readings of

the performance indices showed that deterioration in the services and construction sectors were moderating,

while activity in the manufacturing sector posted expansion in both September and October. The expansion

recorded in the new order sub-indices for the manufacturing and construction sectors further suggests that

this recent up-tick in activity could persist in the near term.




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Signs Of Life

Australia - Performance Of Manufacturing, Services And Construction Sector Indices

Source: BMI; Australian Industry Group

Externally, efforts by the Chinese authorities to stimulate their economy and the decision of the US Federal

Reserve to postpone any reduction to its ongoing unconventional monetary stimulus have helped lift key

commodity prices and import volumes, such as iron ore, from their earlier lows in June. Together with

domestic factors, these trends suggest that economic growth could hold up until Q214, and as such, we have

raised our 2014 forecast, expecting real GDP growth to come in at 2.0% versus our previous estimates of

1.8%. This upgrade, however, masks our downbeat medium-term outlook for the economy as risks of a

sharp deflationary shock to the Australian economy continue to grow larger.




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Households Driving Debt Demand

Australia - Total Private Sector Credit Growth (% chg y-o-y) & Growth Contribution FromComponents (pp)

Source: BMI; Reserve Bank of Australia

Ongoing Misallocation Of Capital Increases Risks

As we have highlighted before, Australia's high level of external portfolio debt makes its currency very

vulnerable to external shocks. With much of this debt extended to the financial sector, the risks that a re-

pricing of the creditworthiness of banks or a similar liquidity squeeze as seen in 2008-09 could have a

significant impact on the Australian economy. Moreover, via the banks, much of this liquidity has continued

to flow into the housing sector, even as households owe roughly two-thirds of the total private sector debt in

the country that currently towers at 140.4% of GDP. In comparison, businesses have reined in their use of

credit despite the Reserve Bank of Australia's (RBA) easing its cash rate, cutting 50 basis points (bps) to

bring the cash rate to 2.50% as of end-October.




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Divergent Performance Unlikely To Persist

Australia - House Price Indices For Queensland, Sydney, Australia

Source: BMI; RP Data

Indeed, attribution analysis of the drivers of credit growth clearly shows the ongoing misallocation of

capital within the Australia, where ever more liquidity is headed to the housing sector, driving up property

prices. Although some observers have accredited the uneven house price growth in the different states to

differing underlying supply and demand dynamics in each area, we believe that these factors are unlikely to

hold up in the face of a weaker job market. We believe that demand for goods and services remain uncertain

at best, and see room for input prices such as wages to head lower. Growth from the mining sector is likely

to slow further as demand for resources tapers. As such, until businesses restart spending and hiring, we

believe the current uptick in activity will be limited, and hence, we maintain that the current trajectory of

house prices is built on shaky fundamentals and could correct should renewed worries of the economy come

to the fore and/or the financial sector find itself in another funding squeeze.

Increasing Pressures For Greater Macro-Prudential Rules

Given the disproportionate flows into the housing sector, we believe that there the RBA, in conjunction with

the banking regulator, the Australian Prudential Regulatory Authority (APRA), will find it increasingly

attractive to put in place macro-prudential rules and other limits to rein lending to the household sector.

Indeed, as banks were announcing their quarterly earnings result at the end of October, the APRA warned

the sector of handing out excessive dividends to shareholders, and further cautioned that it was looking at

implementing a higher capital charge on domestic systematically important banks (DSIB).




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Private Consumption:The mining sector slowdown is expected to weigh on overall economic growth in

the country, which is likely to affect wage growth as well. Given that many businesses have adopted the

wait and see approach to hiring and spending, we believe that softness in the job market is likely to persist,

and weigh on household consumption. As such, we maintain our outlook for private consumption growth to

slow from 3.7% in 2012 to 1.5% and 1.3% in 2013 and 2014 respectively.

Private Investment:We have long implied a slow growth in investment as business credit has remained

slow, despite the aggressive rate cuts by the central bank this year, and cost cuts within industries like the

auto manufacturers suggest that investment could remain weak. The tapering off of iron ore and coal

investments will similarly weigh on fixed capital investment growth. That said, we have upgraded our

forecast 2014 slightly to better reflect the accelerating pace of construction for several gas terminals,

expecting fixed-capital formation to grow at 2.0% in 2014 versus 1.2% previously.

Public Consumption And Investment:The new coalition government remains keen on pushing through

its infrastructure and spending plans even though this is likely to raise the amount of public debt. While we

maintain our outlook for the government expenditure on goods and services (not infrastructure) to growth

by 2.0% in 2013 and 2014, we highlight that upside risks could increase in 2014 should the economy falter

once again.

Net Exports:While the stimulus in China helped lift its domestic steel industry and, correspondingly,

Australian iron ore exports from contractionary territory in the near term, we believe that the ongoing

rebalancing within the Chinese economy will lead to a gradual decline in demand for certain Australian

commodity exports. Moreover, ongoing construction of gas terminals in Australia is likely to put upward

pressure on import growth over 2014-2017. As such, we believe that the country's trade balance will see a

much more gradual improvement in 2014, and we forecast real export and import growth to rise to 4.5%

and 2.7% respectively, compared to estimates of 2.3% and 1.4% in 2013.




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Table: Australia - Economic Activity

2008 2009 2010 2011e 2012e 2013f 2014f 2015f 2016f 2017f

Nominal GDP,AUDbn 1,3

1,233 1,255 1,356 1,445 1,488 1,560 1,624 1,704 1,799 1,902

Nominal GDP, US$bn 1,3

1031 980 1245 1491 1541 1536 1421 1363 1376 1427

Real GDP growth,% change y-o-y2,3

2.8 1.1 2.9 2.2 3.7 2.4 2 2.5 2.8 3

GDP per capita,US$ 1,3

48,120 44,870 56,895 66,785 68,351 67,434 61,782 58,702 58,686 60,267

Population, mn 4 21.6 22 22.4 22.7 23.1 23.3 23.6 23.9 24.2 24.5

Industrialproduction index,

% y-o-y, ave 3

2.3 -0.1 3.9 -0.6 3.6 2.5 1.2 1.6 2.1 2

Unemployment,% of labour force,eop 3

4.6 5.5 4.9 5.2 5.4 6 6.6 6.1 5.7 5.5

Notes: eBMI estimates. fBMI forecasts. 1Calendar Years; 2Calendar Years, Base Year = FY2008/09 (July-June).Sources: 3ABS/BMI calculation; 4World Bank/UN/BMI.




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Competitive Landscape

Market Structure

Protagonists

Table: Protagonists In Australia's Commercial Banking Sector

Central bank: Reserve Bank of Australia (RBA)

www.rba.gov.au

The RBA's main responsibility is monetary policy. Policy decisions are made by the Reserve Bank Board, with the aim ofachieving low and stable inflation over the medium term. Its other major roles are maintaining financial system stabilityand promoting safety and efficiency in the payments system. The RBA is an active participant in financial markets,manages Australia's foreign reserves, issues Australian currency and acts as banker to the government.

Principal banking regulator: Australian Prudential Regulation Authority (APRA)

www.apra.gov.au

APRA is the regulator of the Australian financial services industry. It oversees banks, credit unions, building societies,general insurance and reinsurance companies, life insurance companies, mutual societies and most members of thesuperannuation industry.

Banking trade association: Australian Bankers' Association (ABA)

www.bankers.asn.au

The ABA works with its members to provide analysis, advice and advocacy, and contributes to the development ofpublic policy on banking and other financial services. The association aims to ensure the banking system can deliver thebenefits of competition to Australian banking customers.

Definition Of The Commercial Banking Universe

The Australian Prudential Regulation Authority lists 21 Australian-owned banks, eight foreign subsidiary

banks, 41 branches of foreign banks, nine domestic building societies and 85 credit unions operating in the

country, as of December 2013.




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List Of Banks

Table: Major Banks

Australia and New Zealand Banking Group

Commonwealth Bank of Australia

National Australia Bank

Westpac Banking Corporation

Source: APRA, BMI

Table: Other Domestic Banks

AMP Bank

Bank of Queensland

Bendingo and Adelaide Bank

Community CPS Australia

Defence Bank

Heritage Bank

Macquarie Bank

MECUMembers Equity Bank

Police Bank

Police Financial Services (BankVic)

Police & Nurses (P&N Bank)

QT Mutual Bank

Rural Bank

Suncorp-Metway

Teachers Mutual Bank

Victoria Teachers Mutual Bank

Source: APRA, BMI




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Company ProfileBendigo and Adelaide Bank

SWOT Analysis

Strengths Strong regional loyalty.

The bank has a sound credit quality, a balance sheet with a low level of risk and a

high quality capital base.

Total assets increased over the twelve-month period to June 2013.

The bank has achieved some of the best customer satisfaction levels in the industry in

recent years.

Weaknesses Higher cost of funding than larger rivals.

Significant costs involved in integrating Adelaide Bank, the weaker half of the merger.

Operating in an environment that favours the 'big four' Australian banks.

Opportunities Room to expand geographically.

Boasts an improving Tier 1 capital ratio.

Threats Increasing squeeze on interest margins as the cost of funding remains relatively high.

Potential for increased regulation in 2014.

Company Overview The Bendigo and Adelaide Bank Group was formed in November 2007 as a result of the

merger between Bendigo Bank and Adelaide Bank. A publicly listed company, the

group is owned by more than 90,000 shareholders. Bendigo Bank is represented in all

states and territories with almost 900 outlets, including more than 190 company-owned

branches, 275 locally-owned Community Bank branches, 90 agencies and 1,900 ATMs.

The bank had a staff of 6,500 as of June 2013.

The bank's retail arm, Bendigo Bank, provides banking and wealth management

services to individuals and small to medium businesses (SMEs). Through Adelaide

Bank, the group operates a substantial wholesale banking business, providing

mortgages to a large number of Australians via a network of brokers and mortgage

managers. In addition, Adelaide Portfolio Lending funds aged care and third party credit




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Table: Stock Market Indicators

2006 2007 2008 2009 2010 2011 2012 2013 19-Feb-2014

Market Capitalisation AUD 1,912 3,798 2,997 3,515 3,626 3,133 3,465 4,877 4,889

Market Capitalisation US$ 1,507 3,330 2,112 3,156 3,709 3,213 3,597 4,354 4,414

Share Price AUD 13.75 14.57 10.86 9.84 9.95 8.03 8.50 11.75 11.78

Share Price US$ 10.84 12.77 7.65 8.83 10.18 8.23 8.83 10.49 10.63

Share Price US$, % change (eop) 27.7 17.8 -40.1 15.5 15.2 -19.1 7.2 18.9 n.a.

Change, year-to-date n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 1.4

Shares Outstanding (mn) 143 146 278 312 361 367 402 412 n.a.

Source: Bendingo and Adelaide Bank Limited, Bloomberg

Table: Balance Sheet (AUDmn)

2006 2007 2008 2009 2010 2011 2012 2013

Total Assets 15,196 17,002 48,049 47,114 52,141 55,005 57,238 60,282

Loans & Mortgages 12,437 13,844 39,575 38,216 42,937 45,867 48,139 49,957

Total Deposits 13,600 15,231 31,405 31,880 37,076 40,521 44,573 47,439

Total Shareholders' Equity 900 1,015 3,298 3,119 3,880 3,960 4,218 4,434

Earnings per share (AUD) 0.80 0.81 0.87 0.25 0.67 0.92 0.49 0.85


Table: Balance Sheet (US$mn)

2006 2007 2008 2009 2010 2011 2012 2013

Total Assets 11,280 14,453 45,978 38,045 44,148 58,910 58,583 54,983

Loans & Mortgages 9,232 11,768 37,869 30,859 36,354 49,124 49,270 45,566

Total Deposits 10,095 12,948 30,051 25,743 31,392 43,398 45,620 43,269

Total Shareholders' Equity 668 863 3,156 2,518 3,286 4,241 4,317 4,044

Earnings per share (US$) 0.60 0.64 0.78 0.19 0.59 0.91 0.50 0.87





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AMP Bank

SWOT Analysis

Strengths The backing of Australia's largest wealth management company.

Access to lower-cost funding through various government stimulus schemes.

Offers a wide range of financial products and services.

Underlying profit increased during the 2012 full-year.

Weaknesses As a banking unit, AMP is small and limited in scope compared to the four largest

banks.

High exposure to residential real estate markets.

Opportunities Expansion of banking services, although the market is already mature.

Expansion of distribution networks for other financial services.

Synergies from merger with AXA Asia Pacific Holdings.

Total assets rose to AUD118.75bn in 2012.

Threats

Deteriorating credit quality and slower loan growth.

Potential for increased regulation of banking sector.

Potential for a housing market correction in some cities.

Company Overview Since 1849 AMP Bank has offered commercial banking services. The company's

products include home loans, savings and investments accounts, and credit cards. It

operates as a subsidiary of AMP Ltd, Australia's largest wealth management company.

In March 2011, AMP merged with the Australian and New Zealand businesses of AXA

Asia Pacific Holdings. It has more than 5,800 employees across Australia, New Zealand

and Asia and more than 6 million customers. The group's assets under management hit

AUD173bn in 2012.

The AMP group offers a wide range of financial products and services including

retirement savings and income, investments, superannuation, financial planning,

insurance and banking.




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In August 2013, AMP appointed a new CEO Craig Meller to take over the retiring Chris

Dunn. Shortly after the change in leadership, the bank created two new business

divisions - insurance and superannuation, and advice and banking - while streamlining

its management teams as part of Meller's effort to run a leaner operation.

Corporate

Highlights

AMP Limited's net profit attributable to shareholders for the 2012 full-year came in at

AUD704mn, up from AUD688mn in 2011 though still down from the AUD775mn

recorded in 2010. Underlying profit for the year rose 5% to AUD955mn compared to

2011 (though that year only included a nine-month contribution from AXA Australia and

New Zealand after the merger in March 2011).

The lender's total assets rose 7.7% y-o-y to AUD118.75bn by the end of 2012, up from

AUD110.29bn as of December 31 2011.

Company Data Website:www.amp.com.au Status:Subsidiary of AMP Limited, which is a Public Listed Company.


2007 2008 2009 2010 2011 2012

Total Assets 105,309 86,750 89,830 91,605 110,290 118,751

Loans & Mortgages 99,150 80,641 84,171 85,120 96,972 106,263

Total Deposits 52,357 41,150 47,239 48,579 52,940 58,385

Total Shareholders' Equity 2,014 2,117 2,634 2,998 6,897 7,531

Source: AMP Bank, BMI


2007 2008

Total Assets 8,083 7,593

Loans & Mortgages 7,153 6,793

Total Deposits 2,263 2,790

Total Shareholders' Equity 192 118

Source: AMP Bank, Bloomberg




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Table: Key Ratios (%)

2007 2008

Return on Assets n.a. 0.3

Return on Equities n.a. 14.3

Loan Deposit Ratio 316.3 243.6

Loan Asset Ratio 88.5 89.5

Equity Asset Ratio 2.4 1.6

Source: AMP Bank, Bloomberg




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Westpac Banking Corporation

SWOT Analysis

Strengths One of the dominant banking franchises in Australia.

Access to lower cost funding through government support during the crisis.

Offers a wide range of products and services.

Maintains offices in key financial centres.

Weaknesses Higher exposure to the residential real estate market than rivals.

Opportunities

Further expansion in Australia through Lloyd's acquisition.

Looking to increase its footprint in SME lending.

Expenses kept under control in FY13.

Posted a 14% y-o-y increase in net profit for FY13.

Threats Slower loan growth.

Potential for increased regulation in 2014.

Company Overview Westpac is one of the big four dominant banking franchises in Australia. It was the

country's first bank, established as the Bank of New South Wales in 1817. It has around

12mn customers and a strategic focus on Australia, New Zealand and the near-Pacific

region. The bank offers a wide range of services in retail, business and institutional

banking. It has financial centres in London, New York, Hong Kong and Singapore, andover 1,500 branches mainly concentrated in Australia, New Zealand, and the Pacific

Islands.

Westpac grew after its merger with the much smaller St George Bank in December

2008. The bank has five key divisions: Westpac retail and business banking, St George

Bank, BT Financial Group (all Australia-based), Westpac Institutional Bank and Westpac

New Zealand.

As at September 30 2013, the Westpac Group employed approximately 36,000 people

(full time equivalent basis) in Australia, New Zealand and around the world, and had




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global assets of AUD696bn. Westpac is ranked in the top five listed companies by

market capitalisation on the Australian Securities Exchange Limited (ASX).

In October 2013, Westpac announced that it would acquire select businesses from the

UK's Lloyd's Bank Australian operations, for an estimated AUD1.45bn, to be financedinternally. The bank said it would have a minimal impact on its capital ratios, but should

deliver a boost to cash earnings from FY15.

In January 2014, Westpac was crowned the world's most sustainable company at the

World Economic Forum in Davos, the only Australian company to feature in the top 10.

Corporate

Highlights

Westpac's net profit attributable to shareholders for the 2013 full-year (ending

September 30, 2013) came in at AUD6.82bn, up 14% from AUD5.97bn a year earlier.

This reflects strong performances across all major business divisions (overall net

operating income was up 3.6% y-o-y), sharply lower impairment charges (down 30.1%y-o-y) and well managed expense growth (up just 0.2% y-o-y).

Also during the 2013 full-year the bank strengthening its balance sheet, with total assets

growing by 3.2% y-o-y to reach AUD696.6bn at end September 2013. Loans and

advances to individuals and businesses increased by 4.2% y-o-y, while deposits were

up 7.5% y-o-y to reach AUD424.5bn.

The bank's Common Equity Tier 1 capital ratio under Basel III standards also improved

in FY13 to reach 9.1%, up from 8.2% a year earlier. The lender's total capital adequacy

ratio rose to 12.3% from 11.7%.

Company Data Website:www.westpac.com.au Status:Public Listed Company


2006 2007 2008 2009 2010 2011 2012 2013 19-Feb-2014


Market Capitalisation US$ 35,362 45,975 34,445 67,533 68,287 62,636 83,917 89,869 92,394Share Price AUD 24.09 27.75 16.87 25.15 22.08 19.88 25.88 32.38 32.91

Share Price US$ 18.99 24.33 11.89 22.58 22.59 20.39 26.87 28.91 29.72



Shares Outstanding (mn) 1,835 1,860 1,890 2,935 2,983 3,024 3,075 3,096 n.a.

Source: Westpac Banking Corporation, Bloomberg




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2006 2007 2008 2009 2010 2011 2012 2013

Total Assets 299,578 377,653 439,676 589,587 618,277 670,228 674,965 696,603

Loans & Mortgages 234,484 275,377 313,545 463,459 477,655 496,609 514,445 536,164

Total Deposits 167,741 202,054 233,730 329,456 337,385 370,278 394,991 424,482

Total Shareholders' Equity 16,098 17,831 19,471 36,571 40,118 43,808 46,219 47,481




2006 2007 2008 2009 2010 2011 2012 2013

Total Assets 223,635 334,525 347,432 521,077 597,008 651,730 701,019 650,418

Loans & Mortgages 175,042 243,929 247,763 409,605 461,224 482,903 534,303 500,616

Total Deposits 125,219 178,979 184,693 291,173 325,779 360,058 410,238 396,339





2006 2007 2008 2009 2010 2011 2012 2013

Return on Assets 1.1 1.0 0.9 0.7 1.1 1.1 0.9 1.0

Return on Equities 22.1 22.9 23.1 13.2 17.4 17.5 13.9 15.0Loan Deposit Ratio 140.5 137.0 135.0 142.0 143.0 135.2 131.2 127.2

Loan Asset Ratio 78.7 73.3 71.8 79.4 78.0 74.7 76.8 77.5

Equity Asset Ratio 4.7 4.2 4.0 5.9 6.2 6.2 6.6 6.7

Total Risk Based Capital Ratio 9.6 9.5 10.8 10.8 11.0 11.0 11.7 12.3

Tier 1 Capital Ratio 6.9 6.5 7.8 8.1 9.1 9.7 10.3 10.7





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National Australia Bank

SWOT Analysis

Strengths One of the dominant banking franchises in Australia.


Cash earnings increased by 9.2% in FY13.

Asset quality improving across key business sectors.

Weaknesses Exposure to weaker market conditions from its subsidiaries in the UK and the US.

Opportunities

Acquisitions and strengthening of its insurance and funds management businesses.Acquisition of Aviva Australia's wealth management business showed a willingness to

invest even during the downturn.

Disposal of UK brands could provide a capital injection and exit from a sometimes

unstable market.

Potential for growth in Asia Pacific region.

Threats Sluggish loan growth.

Potential for greater regulation.

Company Overview National Australia Bank Group is a financial services organisation with over 12.4mn

customers and 42,000 employees, operating more than 1,800 stores and Service

Centres globally. It is one of the four dominant banking franchises in Australia, and has

a strong international presence, notably in the UK and the US through acquisitions, but

also New Zealand and Asia.

The NAB Group provides a comprehensive and integrated range of financial products

and services. In Australia, it owns the funds management business MLC and Aviva's

wealth management business, including its life insurance operations and leading

platform Navigator. In the UK, it owns Clydesdale Bank and Yorkshire Bank, in New

Zealand, it owns the Bank of New Zealand and in the US it owns Great Western Bank.

However, media reports say NAB may be looking to offload its UK operations, which

have been a drag on group profits in recent years.




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As part of an effort to improve efficiency and focus on digital banking, in recent years

NAB has slowly scaled down its network of branches and ATMs in Australia, holding

1,819 and 4,613 respectively at the end of FY13.

In March 2013, NAB updated its key strategic outline, adding an emphasis ontechnology to digitise and simplify the business operations and deliver an improved

service for clients. The bank will continue to focus primarily on its Australian franchise,

while expanding operations in Asia.

Corporate

Highlights

The banking group's consolidated profits on a cash basis increased by 9.2% y-o-y from

2012 to reach AUD5.94bn in FY13 (ending September 30 2013), largely attributable to

2.0% increase in net operating income and 26% y-o-y reduction in provisions for bad

loans. Net after-tax profit attributable to shareholders stood at AUD5.45bn.

Total assets rose to AUD808.43bn at end FY13, up from AUD763.10bn a year prior.Loans and advances to customers rose by 4.4% y-o-y to AUD411.98bn, while deposits

were up 6.1% to AUD445.57bn over the same period.

At end FY13, the lender's Common Equity Tier 1 capital ratio, calculated for the first

time under Basel III international standards, stood at 8.43%, compared to the Basel II

Core Tier 1 ratio of 8.29% in FY12. The total capital adequacy ratio rose to 11.80%

from 11.67% over the same period.

NAB has world class credit ratings at the top agencies, rated 'Aa2' by Moody's and

'AA-' by Fitch and Standard&Poor's, each with a stable outlook.

Company Data Website:

www.nabgroup.com.au www.nab.com.au

Status:

Public Listed Company




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2006 2007 2008 2009 2010 2011 2012 2013 19-Feb-2014



Share Price AUD 24.09 27.75 16.87 25.15 22.08 19.88 25.88 32.38 32.91

Share Price US$ 18.99 24.33 11.89 22.58 22.59 20.39 26.87 28.91 29.72




Source: National Australia Bank Limited, Bloomberg


2006 2007 2008 2009 2010 2011 2012 2013

Total Assets 299,578 377,653 439,676 589,587 618,277 670,228 674,965 696,603

Loans & Mortgages 234,484 275,377 313,545 463,459 477,655 496,609 514,445 536,164

Total Deposits 167,741 202,054 233,730 329,456 337,385 370,278 394,991 424,482





2006 2007 2008 2009 2010 2011 2012 2013

Total Assets 223,635 334,525 347,432 521,077 597,008 651,730 701,019 650,418

Loans & Mortgages 175,042 243,929 247,763 409,605 461,224 482,903 534,303 500,616

Total Deposits 125,219 178,979 184,693 291,173 325,779 360,058 410,238 396,339







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2006 2007 2008 2009 2010 2011 2012 2013

Return on Assets 1.1 1.0 0.9 0.7 1.1 1.1 0.9 1.0

Return on Equities 22.1 22.9 23.1 13.2 17.4 17.5 13.9 15.0

Loan Deposit Ratio 140.5 137.0 135.0 142.0 143.0 135.2 131.2 127.2

Loan Asset Ratio 78.7 73.3 71.8 79.4 78.0 74.7 76.8 77.5








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Commonwealth Bank of Australia

SWOT Analysis

Strengths One of Australia's dominant banking groups, with one of the strongest brands in the

sector.


Strong footprint across Asia.

Weaknesses Export-oriented business customers face challenging conditions.

High exposure to real estate.

Opportunities Group assets continue to increase.

Expansion in the rapidly growing Asian market, building on existing operations in

countries such as China and Indonesia.

Set to open new branches in Indonesia.

Slight increase in net profits during the 2013 fiscal year.

Threats Operating expenses increase by 4% y-o-y in FY13.

Deteriorating credit quality and slower loan growth.

Company Overview Commonwealth Bank of Australia (CBA) provides integrated financial services including

retail banking, premium banking, business banking, institutional banking, funds

management, superannuation, insurance, investment and share broking products and

services. It is one of the largest companies on the Australian Stock Exchange and isincluded in the MSCI World index.

The bank has a growing international presence through subsidiary banks in New

Zealand (ASB) and Indonesia (Commonwealth Bank Indonesia), and investments in

China, with a 20% stake in Qilu Bank and Hangzhou City Commercial Bank. CBA also

has branches in the UK, USA, Hong Kong, India, and Singapore, as well as

representative offices in Beijing, Shanghai, and Hanoi.

As of June 30 2013, CBA had 1,166 branches across Australia, over 3,700 Australia

Post agencies, more than 4,300 ATMs nationwide, and 44,969 employees. At the same




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time, the bank owned 25% of market share for mortgage loans, and over 28% market

share for household deposits.

In December 2013 the bank began to roll out its new mobile banking app for iPhone

and Android platforms, as part of its efforts to remain a market leader in pioneeringmobile technology and, in particular, the 'mobile wallet revolution'.

Corporate

Highlights

The bank posted net profit after tax on a cash basis up by 10% y-o-y in the 12-month

period ending June 2013 (FY13) to AUD7.8bn. The Group delivered a strong Return on

Equity (ROE) performance of 18.4%, again on a cash basis. Within this, net interest

income increased 6% y-o-y to AUD13.94bn, reflecting 4% growth in average interest

earning assets and a four basis point increase in net interest margin. Other banking

income was up by 7% y-o-y to AUD4.22bn, while operating expenses increased by 4%

y-o-y to AUD9.61bn in 2012, driven by inflation-related salary increases and costs ofnew technology.

The group's total assets meanwhile increased by 5% over the prior year to reach

AUD753.9bn at end FY13, despite relatively subdued underlying credit growth. The

bank's Common Equity Tier 1 capital ratio, in accordance with international Basel III

standards, stood at 11% at end FY13, above the sector average of 9.6%.

Company Data Website:www.commbank.com.au Status:Public Listed Company


2006 2007 2008 2009 2010 2011 2012 2013 19-Feb-2014



Share Price AUD 49.48 59.10 28.90 54.85 50.77 49.22 62.18 77.80 74.35

Share Price US$ 39.01 51.81 20.37 49.24 51.94 50.48 64.56 69.45 67.13Share Price US$, % change (eop) 24.4 32.8 -60.7 141.8 5.5 -2.8 27.9 7.6 n.a.

Change, year-to-date n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. -3.3


Source: Commonwealth Bank of Australia, Bloomberg




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2006 2007 2008 2009 2010 2011 2012 2013

Total Assets 369,103 440,157 487,572 620,372 646,330 667,899 718,859 753,876

Loans & Mortgages 257,959 313,545 361,282 466,631 493,459 500,057 525,682 556,648

Total Deposits 171,817 215,715 262,117 360,147 368,903 397,084 432,410 453,857





2006 2007 2008 2009 2010 2011 2012 2013

Total Assets 273,985 374,177 466,558 500,950 547,248 715,320 735,752 687,610

Loans & Mortgages 191,483 266,545 345,711 376,805 417,812 535,561 538,036 507,719

Total Deposits 127,540 183,379 250,820 290,819 312,350 425,277 442,572 413,963





2006 2007 2008 2009 2010 2011 2012 2013

Return on Assets 1.1 1.1 1.0 0.9 0.9 1.0 1.0 1.0


Loan Asset Ratio 70.2 71.5 74.4 76.0 77.2 75.6 73.8 74.4








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Australia and New Zealand Banking Group

SWOT Analysis

Strengths One of the dominant banking groups of Australia.

Significant and growing presence in Asia Pacific markets outside Australia and New

Zealand.


Still has the lowest reliance of Australia's leading lenders on offshore markets to fund

its lending.

Weaknesses

Loan growth is expected to remain slow as Australian economic growth is soft.

Opportunities Expansion in existing markets in Asia Pacific.

Expanding footprint in SME lending.

Set to spend hundreds of millions of dollars on technology over the next five years.

Threats Potential for increased regulation of banking sector.

Any new financial shock to regional economies in the global financial climate.

Company Overview Australia and New Zealand Banking Group (ANZ) is one of the 'four pillars' of the

Australian banking system that dominate the market. At end-2013 ANZ had around

10mn customers in 33 countries and employs 47,500 people. It offers a full range of

banking services to individuals and corporations, with a focus on the Asia Pacific

region. Its aim is to become 'a super-regional bank in the next five years', using its

strong position in Australia and New Zealand to support further regional expansion, witha goal of drawing 25-30% of profits from the region by 2017. As of September 2013,

84% of the group's profits still came from Australia and New Zealand.

ANZ Group operates in 33 countries across Australia, New Zealand, the Pacific, Europe,

Dubai, USA and Asia including its technology and operations centre in Bangalore, India.

ANZ shares and related securities are listed on the Australian and New Zealand

exchanges.

In 2013 ANZ Group was named Bank of the Year in Asia Pacific, Australia, Laos, and

Cambodia by The Banker magazine. It also received approval that year from The




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People's Bank of China to act as market maker for direct trading of AUD-CNY on the

China Foreign Exchange Trading System, and has confirmed that it will open a new

branch in the Shanghai Free Trade Zone. This follows becoming the first Australian bank

to receive a renminbi retail license from China, in 2012.

Corporate

Highlights

For the fiscal year ending September 2013, ANZ posted profits attributable to

shareholders of AUD6.27bn, equivalent to a 10.8% y-o-y rise on 2012, and supported

by a 5% hike in net interest income, to AUD12.76bn. Total annual operating income,

meanwhile, lifted 4% to AUD18.44bn, while operating expenses fell by 3% to

AUD8.24bn.

ANZ Group's total assets rose by 9% to AUD703.0bn at end-FY13, from AUD642.1bn a

year earlier. Over the same period, net loans and advances increased by 10% to

AUD469.3bn, while deposits were up 11% to AUD439.7bn.

At end September 2013, the bank had a Core Tier 1 capital ratio, calculated to

international Basel III standards, of 10.4%, while the total capital adequacy ratio

remained stable at 12.2%. The bank has strong credit ratings from all the main

agencies: AA- (Standard & Poor's and Fitch) and Aa2 (Moody's), each with a stable

outlook.

Company Data Website:www.anz.com Status:Public Listed Company


2006 2007 2008 2009 2010 2011 2012 2013 19-Feb-2014



Share Price AUD 28.21 27.46 15.29 22.88 23.35 20.53 25.05 32.23 31.62

Share Price US$ 22.24 24.07 10.77 20.54 23.89 21.05 26.01 28.77 28.55Share Price US$, % change (eop) 26.6 8.3 -55.2 90.6 16.3 -11.9 23.5 10.6 n.a.

Change, year-to-date n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. -0.8


Source: Australia and New Zealand Banking Group Limited, Bloomberg




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2006 2007 2008 2009 2010 2011 2012 2013

Total Assets 334,640 392,773 470,293 476,987 531,703 604,213 642,127 702,991

Loans & Mortgages 253,261 288,879 333,954 331,447 351,297 394,738 424,548 467,541

Total Deposits 172,394 206,720 251,513 276,556 296,986 352,900 383,686 426,072





2006 2007 2008 2009 2010 2011 2012 2013

Total Assets 249,809 347,918 371,626 421,561 513,412 587,537 666,913 656,383

Loans & Mortgages 189,059 255,889 263,890 292,933 339,212 383,843 440,936 436,543

Total Deposits 128,692 183,113 198,746 244,420 286,770 343,160 398,496 397,823





2006 2007 2008 2009 2010 2011 2012 2013

Return on Assets 1.2 1.1 0.8 0.6 0.9 0.9 0.9 0.9


Loan Asset Ratio 76.3 74.1 71.8 70.4 67.0 66.1 66.8 67.1








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Global Industry Overview

Global Commercial Banking Outlook

We are forecasting accelerating loan growth in 2014 in 40 of 72 commercial banking sectors covered by

BMI, led by developed countries including the US, UK, and various eurozone member states. Conversely,

in many emerging markets, we project decelerating loan growth, including in China, India, and Brazil

(emerging European banking sectors including Russia are notable exceptions). In line with this divergence,

one of our global themes for 2014 is that emerging market countries face a credit hangover at some point in

the immediate future. Developed markets have undergone a severe deleveraging since 2008, starting with

the US and spreading to Europe. At the same time, emerging markets have ramped up credit growth, and the

level of private credit as a percentage of GDP in several countries (Turkey, Brazil, and the Philippines, to

name a few). While emerging market private sector credit-to-GDP is still low by developed world

standards, at approximately 100.5% of GDP versus 199% for developed countries, its recent acceleration

has been breathtaking, rising from just 65% of GDP in 2008.

Dangerously Above Trend

Emerging Markets Private Credit As % of GDP

Source: BiS, BMI




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Now, it looks as though there is likely to be a reversal of fortune, with the private sector in developed

markets reasonably leveraged, if not under-leveraged in some cases, with emerging markets on aggregate

set to see credit-to-GDP growth moderate. In Asia, while China's bubble is perhaps the most concerning,

loans to the household sector have also surged in the ASEAN countries of Singapore, Malaysia, and

Thailand. Even though interest burdens remain low in general thanks to low real interest rates, they are

nonetheless creeping higher. The virtuous cycle - falling interest rates fuelling more borrowing, accelerating

growth and improving the creditworthiness of households and governments - may well begin reversing in

2014. The increase in US interest rates will continue to force an across-the-board reassessment of the

structural macroeconomic picture in many key markets, and test the vulnerabilities of several major banking

sectors.

Regional Outlooks

US And Eurozone:We expect US commercial banking sector client loan growth to accelerate in 2014, as

stronger real GDP growth buoys consumer confidence and businesses increase investment to meet rising

demand. Amidst a backdrop of rising interest rates and a reduction in quantitative easing, we believe banks

will begin to shift their historically large cash assets into lending. In Europe, a new era beckons for

eurozone banking as the European Central Bank is due to take over supervision of national credit

institutions in 2014, which will herald the next stage of economic integration. Though certainly a step in the

right direction towards euro federalism, reforms geared towards banking union will likely mirror the

mistakes made at the birth of the euro. By failing to forge a credible framework for risk sharing across the

bloc, the end result will be a banking union in which federal level supervision has improved but the

economic and political foundations of the euro remain weak and vulnerable to fracturing.

Emerging Asia:One of the major concerns for the global outlook is the prevalence of unsustainable

lending in the Chinese banking sector. Moral hazard within the banking system - namely, the government's

implicit backstop for lending - has been a major factor in allowing the Chinese credit boom to continue to

its current level, and the new government appears in favour of tacking this issue. In doing so, however, this

looks set to create instability in the banking system, which in turn is likely to undermine economic growth

over the coming quarters, if not years. This quarter, our Asia team has focused on South Asian banking

sector opportunities. While South Asian banking systems are similar in many ways, with relatively low

penetration rates, rapid growth, and a heavy focus on lending to the public sector, there are a number of

important differences. We see Sri Lanka's low share of total banking sector assets as positive for long-term

banking sector and economic growth, while Pakistan's excessive public sector credit exposure is a major

risk. Bangladesh's low exposure to government credit, meanwhile, is a significant positive, notwithstanding

the risks posed by ongoing political unrest.



8/10/2019 Australia Commercial Banking

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