Australian Banks at a Crossroads: Squeezed between Global Giants and Small Players

Strategic Insights -

As the chief executive officer of National Australia Bank, John Stewart, works to restore confidence in the company, it is clear that Australia's Big Four banks are facing significant challenges. With the market capitalisation of the Big Four banks combined totaling $US112 billion, they would rank fifth among banks operating in Australia if they were to merge. However, this is not enough to compete with the likes of Citibank, HSBC, Bank of America, and JPMorgan Chase, which dominate the global banking landscape.

Key Takeaways:

  • The Big Four banks in Australia are at a crossroads, struggling to compete with global giants and small players who are using mortgage brokers and financial planners to level the playing field.
  • The banks are being squeezed between the global giants operating in Australia and the small players who are using capital-free securitisation to pick them off.
  • The size of the Big Four banks' balance sheets is no longer a competitive advantage, as smaller players are using securitisation to gain access to capital.
  • The Australian banking industry is at risk of going the way of New Zealand's (entirely foreign-owned) or the Australian investment banking business, without the ability to merge.
  • The Big Four banks are struggling to maintain profitability, with CBA's cost-to-income ratio increasing from 58% to 54% over the past five years.

Statistics:

  • Market capitalisation of the Big Four banks combined: $US112 billion ($A143.8 billion)
  • Citibank: $US260 billion
  • HSBC: $US17 billion
  • Bank of America: $US169 billion
  • JPMorgan Chase: $US132 billion
  • Royal Bank of Scotland: $US92 billion
  • CBA's cost-to-income ratio: 58% (increased from 54% over the past five years)

Sources:

  • [1] ALAN KOHLER, "It's blood in the water time in Australian banking: National Australia Bank is wounded and its competitors are putting the bite on its customers," Fairfax, (date not specified)
  • [2] ALAN KOHLER, "Australian banks are being squeezed between global giants and small players," (date not specified)