Banking Industry Analysis & Report

This assignment requires students to analyze the performance and profitability of the banking industry, considering various internal and external factors. Students must identify key drivers of profitability, assess current trends, and provide recommendations for banks to optimize their operations and remain competitive. The final deliverable is a comprehensive report tailored to the CEO of a banking company, outlining insights and actionable strategies.

ANALYSIS

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
a) Industry's contribution to Australia's annual GDP.............................................................1
b) Industry's relations with the government...........................................................................3
c) Predictions may happen in the industry.............................................................................4
d) Predict may happen in the industry if all these factors fall within one year......................6
e) Recommendations to CEO of Commonwealth Bank.........................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Macroeconomics industry analysis based upon the study of particular sector subject to
economic growth and development of organisation (Vogel, 2014). This report is prepared to
analyse the banking industry of Australia in terms of contribution and proportion to GDP of the
country. There will be a description of the relationship shared between industry and government.
Impact on economy of Australia due to decline in currency rates, rise of unemployment rates
and reduction in imports from china are discussed in this report. Prediction as per the changes
for the year are evaluated properly. A conclusive report is produced to the CEO of
commonwealth bank of company in the industry are given in this report.
MAIN BODY
a) Industry's contribution to Australia's annual GDP.
Australian baking sector and financial service sector retain largest share in economic
growth and development of nation. Banking industry contribute to Australia's economic through
large investment in IT and drivers of productivity. It contributed approx $140 billion GDP over
last year in economy (Banking Australian FinTech, 2018). It has become a core service sector of
Australian economy and emerging as a economic growth factor. The common wealth bank is an
Australian multinational bank counted as highest contributor to financial growth. Its core
activities and businesses are carried out across Asia, the united states, the united kingdom and
New Zealand. Australian banking sector is a combination of various services like financial
services, business and institutional banking, insurance, investment and broking services. In
Australian securities exchange, listed commonwealth bank and this exchange including brands
like colonial first state, bank west, commonwealth securities. Royal commission is a legal
authority controls the banking services and activities in Australia.
In Australian economy Gross domestic product by banking industry is USD 1,343.6
billion (2017, estimate) and international reserves are USD 52.2 billion (2016). In Australian
economy GDP ( purchase power parity ) Intl $ 1246.6 billion (2017, estimate ). Real GDP
growth was of banking industry 2006 to 2017 are follows as – growth rate was in 2006 was
2.7%, 2007 – 4.5%, 2008 – 2.6%, 2009- 1.8%, 2010 – 2.3%, 2011 – 2.7%, 2012 – 3.6%, 2013-
2%, 2014 – 2.7%, 2015 – 2.4%, 2016* - 2.9% and 2017* - 2.7% (Economic growth, 2013).
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These growth rates indicate that how economic growth rate fluctuated according to year.
It is expected to that financial and banking services will be explored in terms of investment in
infrastructure and retail sectors. GDP per capita of last year prices USD 54,236.0 (2017,
estimate) and for PPP Intl $ 50,321.8 (2017, estimate). GDP (PPP) of share of world total in
1980 was 1.20%, 1990 was 1.17%, 2000 was 1.13%, in 2010 was 1.05% and in 2017 was 1.0%.
GDP composition by sector is as follows
 Agriculture - 3.6%
 Infrastructure and manufacturing industries – 28.2%
 Services – 68.2%
In Australian economy banks make a major contribution and an important industry retain
their own right and regulations. Banking sectors also provides large amount of income in terms
of high taxes to government. There are some factors related to GDP are defined as follows-
 Economic growth – The Australian economy is a modern service economy and a
developed economy. 9.3% of cumulative share of banking and financial service sector
was recorded in total service sector. Overall growth including banking, financial and
insurance services was recorded as follows 2010 was 8.8%, in 2012 was 8.7%, in 2014
was 8.9% and in 2015 was 9.3% (Economic growth, 2013).
 Exports – Criteria of export of financial services was found less form contribution to
GDP perspective. Exports from financial services and over the year ending June 2015,
was recorded as 5.7% and contribution of financial services in exports counted as 1.1%
in Australia's total exports.
 Productivity and efficiency – Productivity is primary source of higher living standards
and economic advancement. Banks constantly imp in Australian economy banks make a
major contribution and an important industry retain their own right and regulations.
Banking sectors also provides large amount of income in terms of high taxes to
government. There are some factors related to GDP are defined as follows-
 Economic growth of banking and financial services – The Australian economy is a
modern service economy and a developed economy. 9.3% of cumulative share of banking
and financial service sector was recorded in total service sector. Overall growth including
banking, financial and insurance services was recorded as follows 2010 roving of their
operations by efficiency and banks drive these productivity. For measure of productivity
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and efficiency there are many variety and banking system contains cost to income ratios,
bank margins and multi factor productivity. Cost of merging common measure is the net
interest margin recorded positive. In the end of June 2014, the finance and insurance
productivity growth averaged 1.4% per year. Multi factor productivity did not improve
over this period (Zeitun, 2012).
b) Industry's relations with the government
Four major bank groups dominate Banking of Australia, they are Commonwealth Bank
of Australia, Westpac Banking Corporation, Australia and New Zealand Banking Group,
National Australia Bank which holds around 95 percent of total banking industry's share and this
is due to four pillars policy that restricts merger between these banks adopted by Australian
government in 1990. These four banks are among World's largest banks in terms of market
capitalization. Acts applicable on authorised deposit-taking institutions by Australian Parliament
are:
 Banking Act 1959
 Reserve Bank Act 1959
 Financial Sector Shareholdings Act 1998
 Corporations Act 2001
 Financial Sector Collection of Data Act 2001
 Financial Sector Transfer and Restructure Act 1999
Positive contribution of banking industry was recorded in economic growth to Australian
economy subject to finance areas and insurance (Rahman, Rahim and Rosman, 2013). Australian
banking industry pays highest tax than any other industry and contributes about 9.3 percent of
GDP in 2015 resulted in significance growth of government's revenue. Financial and banking
system of Australia is very strong and Government's activities towards them enhance capabilities
to react to financial fluctuation, opportunities to invest in infrastructure and industries in future.
For creating economic profits to shareholders, Australian banks needs to upgrade technology and
speed up their efficiency agenda. Banking services includes credit facilities, investments,
insurance, savings, deposit products, overdrafts, trustee services, credit cards, financial advice,
home loans, wealth management services, risk management services, secured and unsecured
lending etc.
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Australian government is planning to implement bill of open banking regime which will
bring more rights and control to the public. The customers will now be able exercise control on
the banking data and are also provided with extended services related to mortgages, personal
loans, services on low prices, efficient delivery. Non-Australian banks are allowed by the
government to open branches in Australia for general banking and financial services but
wholesale markets are required to get financial services from local-incorporated branch formed
under Australia banking system. Australian banking industry held same position as mining
industry in Australia, also there is a tough competition due to many choices of financial products
and services. Banks made a momentous contribution in government revenue and provides
employment to approximately 150,000 people across Australia. Different form of banks prevails
in Australia are state owned banks, universal, commercial, retail, investment, private and other
banks. Australian's 147 deposit-taking institution (ADI's) should necessarily consists minimum
of five directors and majority of independent directors, non-executive directors, ordinary resident
director in Australia (Sufian, 2011).
Banking royal commission established on 14th December 2017 to investigate misconduct,
criminal or any legal proceedings in Australia's banking and financial services (Wu and Shen,
2013). Adequate mechanism to satisfy victims which are also considered as safeguards provided
to public of Australia to protect their rights. It provides legal solutions to victims and This
commission was established to keep watch on bribery, faulty documents, faults in verifying
customer profile before giving them loan, forcing customers to buy insurance by Australia's
banks. Australian government made regulation bodies for different areas of banking industry
like, Australian Securities and Investments Commission to search unclaimed money and
government guarantee on deposits, Australian Transaction Reports and Analysis Centre to
provide information about anti-money laundering and counter-terrorism financing, Reserve Bank
of Australia gives updates about banknotes, prevailing exchange rates, Credit and Investment
Ombudsman, Financial Ombudsman Service, Office of State Revenue.
c) Predictions may happen in the industry
1. If the value of currency decreased by 10%
U.S. Dollar (0.72 USD = 1 AUD)
Euro (0.62 EUR = 1 AUD )
British pound (0.55 GBP= 1 AUD)
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Japanese Yen (81.6 JPY= 1 AUD)
Canadian dollar (0.94 CAD= 1 AUD)
Swiss franc (0.70 CHF= 1 AUD)
Mexican peso (13.74 MXN= 1 AUD)
An exchange rate is the price or value of one currency in respect to another country's
currency. Change in Australian dollar affects prices of goods and services, thus it increases
competition between domestic exporters and importers. Depreciation in exchange rate of
Australian dollar causes decrease in imports as they will be more expensive. But preference for
domestically produced goods will rise due to cheaper rates. Both decrease in demand and
increase in inflation rates, lower interest rates are correlated in a way that deprecate the country's
currency. Depreciation of Australian dollar can create a situation of economic crisis because it
has a negative effect on possible reduction of financing costs and on borrowing funds. Hence
loan's cost will increase and real income will decrease which is necessary for smooth functioning
of companies subject to delivering loans and long term grants for international trading (Lin,
2012).
2. China reduces imports by 10%
Current exchange rate of Australian dollar to Chinese Yuan is 4.97. China is the biggest
trading partner of Australia and a huge source of income as well. China's imports from Australia
mainly comprises iron ore, coal, agricultural and fisheries products. China is decreasing its
imports by 10% because it wants to focus on consumption driven growth by developing
investment and physical infrastructure. Australia's economy is heavily depends on foreign
investment and china ranks 9th in share of Australia's foreign direct investment. But if interest
rate increases then, gradually FDI also decreases, so Australia have taken advantage of lower
interest rates. Decreasing in China's imports will also resulted decrease in foreign exchange
reserves of Australia (Rachdi, 2013). It will impact the export of sort of financial services as
credit notes, short term international credit, hedging services and insurance and changes to
financial rates.
3. unemployment rate increased by 10% in Australia
In economic terms, unemployment may be defined as huge loss to productive resources
that contributes to economic growth and standard of living. In case Australia's rate of
unemployment increases to 10% then it will cause direct impact on Australian banking industry
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because if unemployment increases, then investment, savings and deposits with banks will be
adversely affected. Reasons of unemployment are mainly lower growth rate, cyclical weak
demand for labour, structural influences related to vacant jobs. Higher unemployment call for
decrease in inflation rate and eventually it decreases interest rates. The decrease in the interest
rate will affect the income of the banking institutions operating in Australia.
d) Predict may happen in the industry if all these factors fall within one year
If in any situation, value of Australian dollar decreases by 10% against any other key
currencies, china's imports reduces by 10% and rate of unemployment in Australia increases by
10% within one year then it will have mixed impact on Australia's banking industry.
Depreciation in Australia's currency will react positively on Australian export as goods and
services will become relatively cheaper in competitive market (Assaf, Barros and Ibiwoye,
2012). But Australia's export to China has reduced because china decreased its imports by 10%,
so this can weaken the trade relationship of Australia and China. At the time of currency
devaluation, quality of imports decreases and of exports increases due expensive imports and
cheaper exports. Increase in the level of exports resulted in improvement of current account
deficit also known as trade deficit or balance of payments which is very important for a country.
Australia's current unemployment rate is 5.6 percent and from an economic perspective,
increase in unemployment represents underutilisation of country's labour. If unemployment rate
increase with 10% then banking industry will also face decline as spending power of people will
decrease. It can also cause the situation of recession because due to unemployment income per
person, health care costs, living standard are also adversely affected. Major impact of those three
situations on Australia's economy will be negative because Australia's currency devaluation and
increase in unemployment rate are not good from the growth perspective while reduction in
China's imports may bring positive changes (Ani and et. al., 2012.). When Australia will export
its goods and services to countries other than China then trade relation with other countries will
become stronger than earlier. And by exporting so much it can achieve economies of scale.
Banking sector is the largest industry in Australia's financial system which comprises
about 147 authorised ADI's (deposit-taking institutions jointly holds about 55% of assets of
financial institutions. Unemployment rate is also going to affect by market structure and labour
regulations. In terms of employment, Australia's banking industry comprises about 3.4% of total
employment in quarter ending November 2017. So, one can see from figures that how much
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impact of increase in unemployment rate will be on banking industry. Exchange rate movements
lead to an impact on labour demand or employment through two ways. First is when devaluation
increases, the competitiveness of exports and therefore demand for labour. On the other side,
devaluation improves cost of intermediate inputs that may nullify the first effect ( Jamal, Hamidi
and Karim, 2012).
e) Recommendations to CEO of Commonwealth Bank
Commonwealth bank of Australia
Financial services
Mr. Matt Comyn
I am addressing an evaluation report carried out to analyse the the current banking
environment an system in Australia and nature of services providing at present and to be
provided in near future. It is required to determine the major aspects related to financial growth
and development of the organisation. Different type of macroeconomic factors related to banking
and financial service are considered for determining possible opportunities for banking growth.
As per study it is analysed that banking sector has been evolved since last years and operating
different type of activities and functions for financial growth of different industries like retail
sector, cooperatives, Manufacturing and IT sectors. It is recorded that commonwealth bank
group is the largest group contributed in economy of Australia. Favourable figures and factors
were analysed in terms of economic growth of banking sector. As per the report of CBA last six
months financials bank contributed financial services to 16.3 million customers. $109 billion
leading and personal business customers were recorded to contribution. It is seen that favourable
results was fond in terms of economic growth of organisation. The estimated growth and
development records are helpful in addressing the requirements of business for more favourable
manner. Past growth records indicates an average growth rate of approximate 2.5% and expected
to grow up to 3% till 2017. The investment in IT sector and retail sector was recorded at higher
rate and it is considered that various fluctuations was recorded in terms of deriving the growth
rate of Australia. Therefore it is recommended so add updated IT services in the form of Mobile
banking and applications so that more customers can be availed.
Overall service sector captured sixty eight percent GDP share which is expected to
increased by 70% in next five years. The Infrastructure growth and international banking
structure also been increased form last ten financial years. After financial crisis the damage was
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recovered with reformed import and export policies and regulations related to international
banking. FDI (Foreign Direct Investment) enhanced the scope of banking across the nation.
Therefore, FDI can be considered as a great sources which can be undertaken by the business to
expand their operations further in the country and provide employment to more people. It is
considered that if the value of currency decreased that it directly impact upon the foreign
exchange reserves and intentional trading. Changes in value of different countries may impact
the foreign investment and banking. It is suggested that a moderate approach subject to providing
loans and long term credit to other countries. Comparatively the lending ratio to other countries
will be increased directly. A change factor in import policy (10% reduction in import of china)
may lead negative impact to organisation in respect of exporting financial and banking services
to other counties. Therefore it is essential for a business to form a contingency plan to deal with
such circumstances.
CONCLUSION
The above report summarises the analysis of macroeconomic industry analysis. Banking
industry of Australia is analysed in various perspectives as economic growth, contribution and
share in economy of Australia are analysed at domestic and wider level. It is resulted that
economic growth is favourable in terms of financial services and assisting in GDP growth. It is
concluded that effective relationship with government helped in executing business more
effective and smooth manner. Some economic changes and impacts are discussed and impact of
collective changing factors for particular period also summarised in this report. Recommendation
and suggestions are provided be considering all the change factors. A conclusive report to the
CEO of banking company presents the customised report to lead the banking operations
accordingly.
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REFERENCES
Books and Journals:
Ani, W. U. and et. al., 2012. An empirical assessment of the determinants of bank profitability in
Nigeria: Bank characteristics panel evidence. Journal of Accounting and Taxation. 4(3),
pp.38-43.
Assaf, A. G., Barros, C. and Ibiwoye, A., 2012. Performance assessment of Nigerian banks pre
and post consolidation: evidence from a Bayesian approach. The Service Industries
Journal. 32(2). pp.215-229.
Jamal, A. A. A., Hamidi, M. and Karim, M. R. A., 2012. Determinants of commercial banks’
return on asset: panel evidence from Malaysia. International Journal of Commerce,
Business and Management. 1(3). pp.55-62.
Lin, P. C., 2012. Banking industry volatility and growth. Journal of Macroeconomics. 34(4).
pp.1007-1019.
Rachdi, H., 2013. What determines the profitability of banks during and before the international
financial crisis? Evidence from Tunisia. International Journal of Economics, Finance
and Management. 2(4).
Rahman, A., Rahim, A. and Rosman, R., 2013. Efficiency of Islamic Banks: A Comparative
Analysis of MENA and Asian Countries. Journal of Economic Cooperation &
Development. 34(1).
Sufian, F., 2011. Benchmarking the efficiency of the Korean banking sector: a DEA approach.
Benchmarking: An International Journal. 18(1). pp.107-127.
Vogel, H. L., 2014. Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.
Wu, M. W. and Shen, C. H., 2013. Corporate social responsibility in the banking industry:
Motives and financial performance. Journal of Banking & Finance. 37(9). pp.3529-
3547.
Zeitun, R., 2012. Determinants of Islamic and conventional banks performance in GCC countries
using panel data analysis. Global Economy and Finance Journal. 5(1). pp.53-72.
Online
Economic growth, 2013. [online]. Available
through:<https://www.rba.gov.au/publications/rdp/2013/pdf/rdp2013-03.pdf>.
Banking Australian FinTech, 2018. [online]. Available
through:<https://fintech.treasury.gov.au/the-strength-of-australias-financial-sector/>.
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