Analysis of Australian Banking Sector: A Comparison of Bank of Queensland and Westpac Banking Corp

Principles of Financial Management
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Executive Summary
The paper presented analysis of Australian banking sector and two banks operating within the
sector. The banking industry in Australia is said to be relatively competitive and is dominated
by several financial institutions. Bank of Queensland and Westpac Banking Corp which are
amongst the largest financial institutions operating in Australia were assessed in this paper.
From the analysis, it was found out that Australia is experiencing significant growth. This is
found to have contributed to the current growth in the two banks financial performance. In
essence, it was found out that Westpac enjoys competitive advantage in the banking sector
over the BOQ. This is founded on the notion that WBC experienced increased cash at the end
of the year reported in the cash flow statement over the last two years. With such analysis,
recommendations were offered where it was recommended that potential investors should
invest their money in WBC rather than in BOQ as they would end up gaining more returns in
future.

Introduction
Banking industry in Australia is relatively a competitive sector being dominated by several
financial institutions including the ANZ, Westpac, NAB, the Bank of Queensland and
Commonwealth Bank among others. To manage these banks, the industry is concentrated by
the international standards. The share of the banking industry owned by the four banks is
higher compared to equivalent shares in the other jurisdictions. Concentrations of this sector
has increased since the great recession with major institution’s share of the total ADI assets
experiencing an upward increment from 65.4% by 2007 to around 78.5% by 2014. Besides,
the banking sector has been experiencing significant growth due to the fact that major banks
benefited from the better access to finances and the lower financing costs allowing the sector
to grow at fast rate. In this case, the Bank of Queensland and Westpac Banking Corp would
be evaluated. Westpac and Bank of Queensland are amongst the largest financial institutions
operating in Australia each institutions providing different services ranging from savings to
credit card services.
To be more specific, Westpac is usually the second largest financial institution in Australia
(Westpac Banking Corp 2017). It has relatively large retail banking undertakings. Its brands
comprises of Bank of Melbourne, St George Bank, BT Financial Group as well as Westpac.
The bank is ranked second with market capitalization of $95 billion and are the principal
credit card providers in Australia controlling 25% of lucrative housing market in the country.
It was established in the year 1817 as the only bank in New South Wales (Morningstar 2017).
It employs approximately 32,620 personnel.
The bank of Queensland was established by the year 1874 making it amongst the oldest
financial institutions in Australia. It headquarter is in Queensland and provides retail financial
services to different clients. The institutions employ approximate 48,556 personnel and

operate around 200 branches across the country (Bank of Queensland 2017). In other words,
The Bank of Queensland has several branches via Australia with network of around 252
branches including 166 owner managed branches and 78 corporate branches. Its segment
includes insurance and banking. Insurance segment comprises life insurance, funeral
insurance, customer credit insurance, motor vehicle gap insurance and accident death
insurance (Reuters.com 2018). Banking segment comprises retail banking, personal,
equipment, treasury, commercial, debtor finance, small business loans, transaction and
savings accounts. Personal banking section offering comprises everyday savings, investment
and banking, personal loans, insurance, credit cards, home loans, investing, international
services, account switching and private bank among others (Morningstar 2017). Its business
banking section comprises of investment accounts, investment trust accounts, transaction
accounts, cash flow finance, business loan, equipment finance and statutory accounts.
Top-Down analysis
This form of analysis entails analysis of overall country’s economic growth including GDP
growth rate, interest rate, changes in inflation rate as well as currency exchange value over a
specified period. In essence, it entails analysis of some of the macroeconomic factors that
might influence or impact on the industry and companies financial performance. According
to RBA (2018) Australian economic growth has been promising for the recent months. This
has been evidenced by increasing GDP growth rate over the period. To be more specific,
according to Focus Economics (2018), Australian GDP advanced with around 1% by March
this year. This is considered as the highest growth rate in the country GDP since June last
year, which was boosted by the rebound in the exports. Currently, the growth rate has even
gone a notch higher experiencing a 1.3% increase from the second quarter this year moving