The Influence of Foreign Investment Bank Australian Capital Markets Research Project 2022

THE INFLUENCE OF FOREIGN INVESTMENT BANKS ON
AUSTRALIAN CAPITAL MARKETS
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Table of Contents
1.0 Objectives...............................................................................................................3
2.0 Project Background................................................................................................4
3.0 Academic Literature Review...................................................................................5
3.1 Research problem for study................................................................................5
3.2 Specific Research Objectives.............................................................................5
3.3 Scope of the Research........................................................................................6
4.0 Research Design and Strategy..............................................................................6
4.1 Data Collection....................................................................................................6
4.2 Data Analysis......................................................................................................6
5.0 Expected Outcomes of Project...............................................................................7
6.0 Timeline................................................................................................................10
7.0 Resources.............................................................................................................10
References.................................................................................................................11
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1.0 Objectives
The financial market of Australia has traditionally been open to the world. As a result,
the financial structure has been favourable for external investors to invest in the
market. Simultaneously, the Australian government including corporate sectors have
borrowed fund from foreign countries due to the liberalized economy. Integration with
the global capital market may be considered to be a double-edged sword. The
Australian corporate houses may get the advantage of borrowing from different
countries at a different rate and thereby leverage their capital structure due to
enough access to the financing provision (Ozkan, Cakan and Kayacan, 2017). On
the other hand, the foreign investment made by Australia in different countries
around the globe may have enabled the investors to diversify their portfolio at an
international level. However, such integrated economy may suffer from a certain
limitation in the form of fluctuation in global market scenario and the corresponding
impact on the domestic economy as well (Geddes, Schmidt and Steffen, 2018).
The investment banks in Australia are known for their huge market capitalisation and
stable growth prospects for years within the national territory of the country. The
impact of foreign direct investment through the banking channel has always been an
interesting aspect to study in the field of business and commerce. As a result, the
same holds true for the purpose of this research paper as well. The primary objective
of the research, therefore, may be considered to be examining the problems that the
Australian government may face due to the operation of foreign investment banks in
the economy. The entire paper will be developed and related topics will be discussed
to meet the research objective as framed herein:
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2.0 Project Background
Since the 1970s and 1980s, Australia had opened the door foreign direct investment
in across sectors including the banking (Geddes, Schmidt and Steffen, 2018).
Australians are generally free to borrow and invest in different financial assets
abroad and similar manner foreigners can also do the same in the Australian capital
market due to such open-door policy. The figure below shows the financial openness
from a policy perspective across the world where it shows that Australia is one of the
most foreign investment-friendly countries and economies across the globe (Ozkan,
Cakan and Kayacan, 2017).
Figure 1: Financial Openness of the Global Economy including Australia
(Source: How do global financial conditions affect Australia, 2020)
In such backdrop, it becomes critical and significantly important to analyse on the
fact whether such openness, nice especially in the banking sector, may create a
sizable impact on Australian economy or not and such proposition forms the very
essence of the background of the intended research project.
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3.0 Academic Literature Review
3.1 Research problem for the study
In order to conduct the aforesaid study, the researcher has framed the research plan
which involves the approach towards developing the literature review, identifying the
research method and executing the research afterwards. Since the topic is relevant
in terms of the ever-changing economic backdrop of the world, the significance of the
topic lies on the same. It may be stated that the discussion on Australian current
economic position is an important and relevant topic for the researcher especially, in
the backdrop of coronavirus outbreak pandemic situation which has shaken up not
only Australia but also the global economy as well. In such a scenario, it will be
critical for the researcher to device the research problem accordingly.
3.2 Specific Research Objectives
As stated earlier, the Australian economy is regulated to the extent of foreign
investment as well as foreign borrowings and therefore the economy may be
considered to be volatile to the changes in external financial market across the globe
(Wójcik, Knight, O’Neill and Pažitka, 2018). Also, to put it in simpler terms, it may be
stated that any rate change in the global banking sector may affect the domestic
economy. In a similar manner, Australian investment banks have been primarily
dominated by foreign banks in the given market for few years and therefore any
regulatory change in their respective country or any changes in the global economy
may affect Australian banking sector as well. This volatile scenario forms the
essence of the research problem for the study.
The researcher, in this work, will, therefore, attempt to identify the answer to do the
following to research objectives:
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 To identify the impact of foreign investment banks on Australian investment
banking
 To identify the current situation of the Australian capital market
 To identify the potential impact of the coronavirus outbreak in the Australian
capital market
In order to achieve a reasonable explanation and answers to the aforesaid research
objectives, it will be critical for the researcher to resort various analytical process.
3.3 Scope of the Research
For the purpose of research design and strategy, the researcher has undertaken
secondary research through the reference to various online media, books, journals,
publications and several other learning materials are referred. Also, various
government websites are also researched in order to get the relevant data. For the
purpose of the given research, the Australian government website and the website of
Reserve Bank of Australia (RBA) have been also referred and relevant data and
information has been extracted therefrom (Wójcik, Knight, O’Neill and Pažitka,
2018).
4.0 Research Design and Strategy
4.1 Data Collection
A stated earlier, the data will be collected from secondary research using online
resources and the type of research will be qualitative. In order to assess the overall
health of Australian economy data from the website of the Reserve Bank of Australia
has been referred pertaining to the given period under review.
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4.2 Data Analysis
Since the proposed research is secondary research and based on qualitative
approach, data from various websites, journals, publications have been referred. No
specific sample size has been chosen in the given case and however, for the
purpose of research last 5 to 7 years’ time span has been considered.
5.0 Expected Outcomes of the Project
In recent years, the net inflow of capital within the Australian economy has declined.
In initial days, the country used to borrow significant amount from external countries;
however, in recent years, opposite trend has been witnessed and the shift from
external borrowing to invest in foreign countries have been observed. Though, the
net liability position has been increasing on a consistent basis showing a long-term
upward trend, the recent fluctuation, to be more precise, the downturn has indicated
the fact that the economy’s need for an external fund has considerably reduced. the
figure shows the same (Lien and Sunner, 2019).
Figure 2: Australia’s Net Foreign Liability (as % of GDP)
(Source: How do global financial conditions affect Australia, 2020)
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Accordingly, the investment has declined and saving has increased. In such a
backdrop integration with the global capital market has paved the way to foreign
banks to penetrate into the Australian territory. Since the foreign banks provide credit
to the institutions through a competitive and attractive loan scheme, the economy
experiences a boom in terms of production and manufacturing. However, fluctuation
and recession in global economy considerately affect the working of foreign banks
operating in Australia as well (Lien and Sunner, 2019).
The global downturn, especially in the year 2008, had compelled different countries
to restructure their banking system and Australia, being an integrated financial
market, had also been affected considerably. Foreign banks initially promoted the
development through a sustainable credit system, however, the initial proposition of
the Australian government to allow the foreign banks to bring with different and
varieties of financial products gradually lost its significance (Wong, Higgins and
Wakefield, 2017). As a result, the entrance criteria were changed by the government
focusing more on strong risk management framework as installed by the banks. in
this context, it may be noted that the foreign banks supported economic
development through an aggressive and mass retail lending which enhanced the
capital circulation and formation within the economy (Rogers, Wong and Nelson,
2017).
Also, it may be interesting to note that the initial regulation of the financial sector has
lately been relaxed and deregulation in the financial sector has been introduced by
the government through a liberalised foreign investment framework. Presently
Australia is considered to be an attractive destination for foreign investment which
may be correlated from the fact that the country has a stable political environment,
sound macroeconomic management, efficient workforce and also a stable regulatory
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framework (Regan, 2017). In the banking sector, the government doesn't impose any
specific restriction with respect to the foreign investment and therefore foreign banks
may operate under the broader purview of the regulated system and specific
supervision of relevant policy framework such as Banking Act 1959 etc (Rogers,
Wong and Nelson, 2017).
Besides, the huge credit flow and capital formation within the system through
sustainable credit practice has brought down the credit standards within the country.
The inadequate risk management and improper assessment of the creditworthiness
of the borrower are some of the major areas of consideration which foreign banks
and the regulators may need to have while strategizing or executing their operations
(Hurst, 2019).
Considering the situation, it may be stated that the recent outbreak of coronavirus
pandemic has caused significant losses to the global economy and Australians are
also no exception to the same. The recent research conducted by United Nation
revealed that the world may experience another depression post-2008, the impact of
which may exceed that of the 2008 recession (Hurst, 2019). In such a scenario it will
be necessary for the policymaker to adopt a sustainable policy set where banks will
be provided sufficient credit for onward transmission to the borrowers and industries
to maintain the production momentum (Atoom, Malkawi and Al Share, 2017). Also,
people will be provided with liquidity so that the economy may get restored within
next few years through consistent consumption (Black, Chapman and Windsor,
2017). In this context, the question may arise whether the foreign direct investment
will be further liberated from its existing liberalised framework or the same should be
controlled in a more stringent manner. In the Australia, Foreign Investment Review
Board (FIRB) overseas the FDI operation across the sector and therefore it may be
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concluded that a well-designed policy framework supported by efficient leadership
and governance through FIRB on banking and financial sector will help the country
to achieve a long term goal of sustainability in the financial sector and the economy
as a whole in the most time and cost-efficient manner (Atoom, Malkawi and Al
Share, 2017).
6.0 Timeline
The research has been targeted to be completed within 1 month, the brief timeline is
shown herein:
 The first week – Structuring the paper, visualising the concept and
conceptualising the outcome
 The second week – Collecting the data and listing of all sources
 The third week – Summarising the data collected and performing a literature
review
 The fourth week – Reviewing the paper, running sense check, formatting,
grammar checking and referencing etc.
7.0 Resources
For the purpose of research, primarily the website of RBA has been referred.
Besides, few peer-reviewed journal publications have also been referred. Also, some
websites have been referred to get the idea of foreign banks’ operations within the
country. All such references have been listed in the references or bibliography
section below.
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References
Atoom, R., Malkawi, E. and Al Share, B., 2017. Utilizing australian shareholders'
association (asa): Fifteen top financial ratios to evaluate Jordanian banks'
performance. Journal of Applied Finance and Banking, 7(1), p.119.
Black, S., Chapman, B. and Windsor, C., 2017. Australian Capital Flows. RBA
Bulletin, June, pp.23-34.
Geddes, A., Schmidt, T.S. and Steffen, B., 2018. The multiple roles of state
investment banks in low-carbon energy finance: An analysis of Australia, the UK and
Germany. Energy Policy, 115, pp.158-170.
Hurst, L., 2019. 14. The impact of Chinese state capital during the iron ore
boom. THE CHINESE ECONOMIC TRANSFORMATION, p.287.
Lien, B. and Sunner, D., 2019. Liberalisation of China's Portfolio Flows and the
Renminbi| Bulletin–September Quarter 2019. Bulletin, (September).
Ozkan, N., Cakan, S. and Kayacan, M., 2017. Intellectual capital and financial
performance: A study of the Turkish Banking Sector. Borsa Istanbul Review, 17(3),
pp.190-198.
Regan, M., 2017. Capital markets, infrastructure investment and growth in the Asia
Pacific region. International Journal of Financial Studies, 5(1), p.5.
Reserve Bank of Australia. 2020. How Do Global Financial Conditions Affect
Australia. [online] Available at:
<https://www.rba.gov.au/publications/bulletin/2019/dec/how-do-global-financial-
conditions-affect-australia.html> [Accessed 17 April 2020].
Rogers, D., Wong, A. and Nelson, J., 2017. Public perceptions of foreign and
Chinese real estate investment: intercultural relations in Global Sydney. Australian
Geographer, 48(4), pp.437-455.
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Wójcik, D., Knight, E., O’Neill, P. and Pažitka, V., 2018. Economic geography of
investment banking since 2008: The geography of shrinkage and shift. Economic
Geography, 94(4), pp.376-399.
Wong, P.Y., Higgins, D. and Wakefield, R., 2017. Foreign real estate investment,
residential tourism and the Australian residential property market. International
Journal of Housing Markets and Analysis.
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