Analysis of ANZ and Commonwealth Banks in the Australian Banking Sector

HA1022 Principals of Financial Markets 1
HA1022 Principals of Financial Markets
Author
Course
Professor
City
Date

HA1022 Principals of Financial Markets 2
1. Executive Summary
The report presents analysis of the banking sector and two key companies operating within
this sector which include ANZ and Commonwealth Banks. The banking industry is the
largest sector in Australia dominated by four key banks; that is, ANZ Bank, Commonwealth
Bank, NAB as well as Westpac Banking Corporation. Besides, the banking industry is
amongst the largest contributor to national economy in Australia contribution about $140
billion in the country GDP every year. Commonwealth and ANZ Bank are the two biggest
players in the Australian banking sector each providing wide range of savings accounts,
transaction accounts as well as other financial services and products. Commonwealth Bank is
the Australian largest retail financial institution. On the other hand, ANZ Bank provides
numerous financial and banking products to personal clients. It is also involved in credit
analysis, execution, structuring and the on-going monitoring of its clients. Based on the top-
down analysis, Australian economy is doing relatively good with increased GDP growth,
decreased interest rate and inflation and advanced $AUD over the year. This trend in the
economy has been favourable to the two banks resulting in improved financial performance.

HA1022 Principals of Financial Markets 3
2. Introduction
The banking industry is the largest sector in Australia. The industry is dominated by four key
banks; that is, ANZ Bank, NAB, CBA as well as the Westpac Banking Corporation. Besides,
the banking industry is amongst the largest contributor to national economy in Australia
contribution about $140 billion in the country GDP every year. Besides, the industry is the
key driver of the economic development in Australian employing around 450,000
individuals.
Commonwealth and ANZ Bank are the two biggest players in the Australian banking sector
each providing wide range of savings accounts, transaction accounts as well as other financial
services and products (CBA 2018). The different types of banking services and products
provided by CBA Bank includes saving accounts, credit cards, the personal loans, the home
loans, the transaction’s accounts, term deposits, superannuation products credit card and loan
protection, insurance products, products for the students and youths online and international
banking services (D’Amato 2015). On the other hand, ANZ Bank is provides numerous
financial and banking products to personal clients. Currently, ANZ has around 1,273
branches and is well-known for provision of the best class of the financial services and
products to its clients. It is also involved in credit analysis, execution, structuring and the on-
going monitoring of its clients (Investing.com, 2018).
3. Top-Down analysis
Top-down analysis usually entails assessing the big picture or how overall economy of a
given country and macroeconomic aspects drive the market and the stock prices. In essence,
this form of analysis entails analysis of the country inflation rate, economic or GDP growth,
interest rates and currency value against the USD. With such information, this section entails
analysis of some of the macroeconomic aspects in Australia and their effect to ANZ and
Commonwealth Banks.

HA1022 Principals of Financial Markets 4
To start with the overall economic environment in Australia has been quite promising in the
past few years. Interest rate within Australia is said to average 4.52% since 1990 to 2018
(RBA 2018). Nonetheless, at 7th August during the RBA monetary policy meeting, the
interest rate was left at the all-time low at approximate 1.50% where the rate is said to have
been since 1st August 2016. This move has been broadly in line with the market expectations
(Focus Economics 2018). This rate had significant impact on the banking industry since it has
brought about upward growth in the banking sector. The week wage growth as well as strong
competition amongst the retailers is said to have continued keeping the prices in check. With
the reported interest rate, the RBA reaffirmed its key view that Australian economy would
remain on track with a growth rate slightly above 3% in 2018 and 2019 (Trading Economics
2018). This in turn has resulted in a positive growth in ANZ and Commonwealth bank
financial performance.
Further, the recent resealed information indicates that inflation rate moved within 2 to 3%,
though it nonetheless remained moderate, moving at 2.1% (Focus Economics 2018). With
decrease in inflation rate causes an increase in the banking lending activities as well as stock
market development. This is in turn said to result in increased lending for the financial
institution and in turn increased profitability (Trading Economics 2018). In this case, with
decrease in Australian inflation rate, the ANZ and Commonwealth Bank financial
performance is expected to increase over this year in comparison to the year 2017. This is
based on the fact that if the inflation is kept between 2 and 3% over time, this rate does not
greatly influence individual’s economic decisions (Statista 2018). Maintaining inflation rate
between 2 and 3% would enhance full employment and increased growth (Boyd & Levine
1996). Besides, maintaining inflation rate low would enhance high return on investment to
the two banks since Boyd, Levine and Smith (2001) argued that if inflation is lower, lenders