MA619 Accounting Research: Evaluating Bank Performance Using RPD

This accounting research report investigates the competitive performance and financial positions of four major Australian banks: ANZ, Westpac, Macquarie, and Suncorp. It employs Relative Profit Difference (RPD) analysis to assess the competitive strengths within the Australian banking sector. The report examines key performance indicators derived from the banks' financial statements over several years, focusing on metrics like gross revenue from interests, net interest revenue, earnings from continuous operations before tax, and net income. The analysis aims to determine the relationship between changes in financial performance and the competitive dynamics of the industry. The research methodology involves a detailed evaluation of the banks' accounting and financial reporting practices to understand the impact of competition on their performance.

Running head: ACCOUNTING RESEARCH
Accounting Research
Name of the Student:
Name of the University:
Authors Note:

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ACCOUNTING RESEARCH
Contents
Abstract:...........................................................................................................................................2
Introduction:....................................................................................................................................3
Literature review:.............................................................................................................................4
Relative Profit Difference (RPD):...................................................................................................4
Research question:...........................................................................................................................5
Methodology to be used:.................................................................................................................5
Data analysis:...................................................................................................................................5
Findings of empirical investigation:..............................................................................................28
Conclusion:....................................................................................................................................32
References:....................................................................................................................................33
Appendix:......................................................................................................................................34

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ACCOUNTING RESEARCH
Abstract:
Banks are the foundations of any Economy. The progress and development of a country’s
Economy is very much dependent on the efficiency of its banking system. Banking system of a
country provides the financial resources to each and every sector of an economy to ensure
efficient operations of these sectors. In Australia, the banks and Banking services are governed
by the provisions of Banking Act, 1959 and Reserve Act, 1959. In addition Australian Securities
and Investments Commission Act, 2001, Australian Prudential Regulation authority Act, 1998
and Anti-Money Laundering and Counter-Terrorism Financing Act 2006 also regulates different
functions of banking system. The purpose of the discussion here is to conduct a detailed
investigation on the competitive performance and position of four well know banks in the
country. The document shall be helpful in providing important information about the financial
performance and position of Australia and New Zealand Banking Group Limited, Westpac
Banking Group, Macquarie Banking Group and Suncorp Banking Group. Conducting Relative
Profit Difference research on the four banks mentioned above to measure the competitive
strengths in banking and financial industry in Australia is explained with significant amount of
emphasis on financial performance of these four banks over the years. The data analysis shall be
conducted by taking into consideration the financial information of these banks provided in the
financial reports. The research shall specifically focus on certain key performance yardsticks and
how these have changed over the last few years to come to a particular assertion about the
findings from the research.

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ACCOUNTING RESEARCH
Introduction:
The Australia and New Zealand Banking Group Limited, here in after to be referred to as
ANZ, is one of the largest banks in Australia. In fact currently it is ranked third after the
Commonwealth and Westpac Banking Corporation in term of market capitalization. It largely
operates in Australia and New Zealand. Westpac Banking Corporation (Westpac) is the second
largest bank in Australia in terms of market capitalization behind Commonwealth Bank of
Australia. Headquarter of Westpac is in Sydney, New South Wales (NSW). Suncorp Group is a
Brisbane based organization that provides services in finance, banking and insurance related
matters. Macquarie is finance and baking organization listed in Australia with operations and
services spreading in different parts of the world. In order to measure the competitive strength in
an industry, different and alternative methods have been suggested. In fact still number of
theories are being developed and empirical work is been conducted to introduce new and
improved methods to measure relative strengths in different industries.
Relative Profit Difference (RPD) analysis is one such method that is used to measure the
competitive strengths in different industry. A detailed analysis of RPD and empirical
investigation on the competition between four above mentioned banks shall be conducted with
the objective of measuring competitive strengths in these banks. Boone (2008) introduced the
approach to the world where the relative profit difference can be used to measure competitive
strengths in an industry. According to Boone (2008) the efficiency of an organization will
determine the profitability of such organization. Even under extreme competitive scenario
business organization will be able to manage its profitability level by improving its efficiency.

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ACCOUNTING RESEARCH
Kar, A.K. (2016) has defined that the RPD analysis is effective in the context of
Equilibrium market condition where fair number of firs operating under perfect oligopoly
market. Thus, the RPD analysis will not be effective in any other market situation and will not
provide the actual strengths of competition in a market.
Literature review:
Relative Profit Difference (RPD):
RPD approach was developed and suggested by Boone (2008) to measure competition in
an industry. The approach was suggested in the context of an industry where firms can enter and
compete despite differences in efficiency. The RPD approach assumes that initially firms are
unsure about the decision of whether to enter the market or not. However, once the firms decide
to enter the market, they look to maximize their profits. According to the theory an equilibrium
profit is established where the profit of the firms in the industry is directly related to the
efficiency of the firm. Thus, the RPD approach establishes that a firm in an industry where free
competition exists the firm’s profitability will be equal to its efficiency (Abel, Khobai & Le
Roux, 2017).
Relative Profit Difference approach is a technique developed by Boone (2008) for
measurement of competitive strengths of an industry. The approach is definitely effective but
only in equilibrium condition under multi-firm oligopoly market as explained by Kar, K.A.
(2016). In this case the industry is banking and financial sector in Australia. The shortcoming of
the RPD approach in this specific industry is that the banking and financial sector in Australia
can hardly be defined as multi-firm oligopoly market. Neither there is equilibrium condition in
the market place.

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ACCOUNTING RESEARCH
Since time in memorial scholars are looking to develop better methods to measure the strengths
of competition in an industry with significant results to show their efforts. RPD approach of
Boone (2008) is one of such approach that provide a different scope and measurement technique
to measure the competitive strengths in an industry. This approach definitely helps in assessing
the relative strengths of firms in an industry. However, to measure the competitive strengths of
an entire industry with relative profit difference approach is definitely a challenging task and
requires impeccable methodology to collect data on the basis of which analysis shall be
conducted to form a particular conclusion. Apart from that all underlying variables must be
present and assumption must be correct in order to measure the competitive strengths of an
industry effectively.
According to Boone (2008), firms competing in an industry different in efficiency. The
theory explains that there are mainly three different levels of efficiencies within which a firm
operate and the profitability of the firm is dependent on the efficiency level of the firm. The
following equation is used to measure the efficiency levels:
The profit difference between the most efficient and least efficient firm in an industry,
represented by p, is calculated by inverse Relative Profit Difference (RPD) by using the
following formula:

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ACCOUNTING RESEARCH
According to Boone (2008) the increase in intensity in competition in an industry has an inverse
relationship with p, RPD. Thus, with increase in intensity in competition the term p falls. The
logic behind the argument of Boone (2008) is that as an industry becomes more and more
competitive the firms operating in the industry are punished even harshly for not being at the
maximum efficiency level. In order to establish the relationship between relative profit
difference and normal profits in an industry, established in n, the following equation has been
used by Boone (2008):
Though the theory is quite straight forward in its logic with efficiency as the determinant of
profitability of firms in a competitive industry however, collecting variables and conducting the
RPD empirical investigation requires extensive use of data of firms operating in an industry
(Kar, 2016). In order to calculate the normalize profit of an industry the following sample points
shall be constructed:
Finally, the relative profit difference observation is made by using the following equation:

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ACCOUNTING RESEARCH
Research question:
How the financial performance of 4 banks have affected over the years and is there a direct
connection between the changes in financial performance of these banks and the
competitive strengths of the industry?
The data shall be collected from the financial statements of these banks to evaluate the changes
in the key performance yardsticks of these banks such as revenue, profit and others to explain the
impact of competition in the market. The RPD analysis shall be conducted to calculate the
relative difference in profits of these entities over the years and how the competition in the
industry has influenced the performances of these banks.
Methodology to be used:
Taking into consideration the approach that RPD methodology used to measure the competition
in an industry a detailed investigation of the financial performance of the four banks, i.e. ANZ,
Macquarie, Westpac and Suncorp, shall be conducted with specific focus on accounting and
financial reporting aspects of these banks.
Data analysis:
ANZ:
In order to investigate the financial performance of ANZ over the last few years the income
statements of the company for last few years shall be evaluated. A simple evaluation of the
income statements of the company over the years shall be helpful in assessing how the bank has
performed over the years. However, in order to analyse the competitive performance of the bank
a comparative analysis of the bank’s performance shall be conducted with the performance of
other three banks.

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ACCOUNTING RESEARCH
Simple analysis of income statements of ANZ:
ANZ INCOME STATEMENT
AUD in millions 2014-09 2015-09 2016-09 2017-09
Gross Revenue:
Revenue from interests 29,524.
00
30,526.
00
29,951.
00
29,120.
00
Gross interest revenue 29,524.
00
30,526.
00
29,951.
00
29,120.
00
Less: Interest expense
Interest expense 15,714.
00
15,910.
00
14,856.
00
14,162.
00
Income net of interest
expenses
13,810.
00
14,616.
00
15,095.
00
14,958.
00
Revenue other than interests
Fess and commission
received
3,011.
00
3,170.
00
3,053.
00
2,863.
00
Income (others) 3,942.
00
2,973.
00
2,980.
00
3,916.
00

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ACCOUNTING RESEARCH
Non-interest revenue in total 6,953.
00
6,143.
00
6,033.
00
6,779.
00
Net revenue 20,763.
00
20,759.
00
21,128.
00
21,737.
00
Credit loss provisions 986.
00
1,179.
00
1,929.
00
1,198.
00
Noninterest expenses
Expenses for compensation
and benefits paid
5,088.
00
5,479.
00
5,541.
00
5,178.
00
Expenses on technology and
communication equipment
690.
00
730.
00
734.
00
911.
00
Fees paid to professionals 253.
00
360.
00
450.
00
469.
00
Amortization costs 89.
00
88.
00
83.
00
Cost of merger, acquisition,
and restructuring
113.
00
31.
00
278.
00
62.
00
Extraordinary charges 43.
00
17.
00
27.
00
Other expenses 2,050. 2,358. 2,742. 2,761.

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ACCOUNTING RESEARCH
00 00 00 00
Total expenses (Non-interest) 8,326.
00
9,063.
00
9,855.
00
9,381.
00
Earnings from continuous
operations before tax
11,451.
00
10,517.
00
9,344.
00
11,158.
00
Provision (benefit) for taxes 3,025.
00
3,026.
00
2,458.
00
3,206.
00
Other income (expense) (1,155.0
0)
2.
00
(1,177.0
0)
(1,546.0
0)
Net income after tax 7,271.
00
7,493.
00
5,709.
00
6,406.
00
Preferred dividend 6.
00
1.
00
earnings available to common
shareholders
7,265.
00
7,492.
00
5,709.
00
6,406.
00
The above statements include items of income and expenditures of ANZ of last four years.
Taking into consideration the above information a simple analysis on the movement of three
important yardsticks to evaluate how the competition in the banking industry has affected the
performance of the bank. The four key yardsticks that have been used to measure the impact of

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ACCOUNTING RESEARCH
competition on the performance of the banks are gross revenue from interests, net interest
revenue, Earnings from continuous operations before tax and net income. The table below
contains the details regarding how these four performance yardsticks have changed over the
years.
AUD in millions 2014-09 2015-09 2016-09 2017-09
Gross interest revenue 29,524.
00
30,526.
00
29,951.
00
29,120.
00
Increase in gross revenue / (Decrease) 1,002.
00
(575.0
0)
(831.
00)
Income net of interest expenses 13,810.
00
14,616.
00
15,095.
00
14,958.
00
Increase in net interest revenue / (Decrease) 806
.00
479.
00
(137.
00)
Earnings from continuous operations before
tax
11,451.
00
10,517.
00
9,344.
00
11,158.
00
Increase in net interest revenue / (Decrease) (934.
00)
(1,173.0
0)
1,814.
00
Net income after tax 7,271. 7,493. 5,709. 6,406.

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ACCOUNTING RESEARCH
00 00 00 00
Increase / (decrease) in net income 222
.00
(1,784.0
0)
697.
00
Gross revenue from interests of ANZ has been stagnant since 2014 as can be seen from the
above table. In 2014 the bank earned a gross revenue of $29,524 million which increased in the
very next year to $30,526 million only to move downward by the end of 2016 to $29,951
million. In the year ending on June 30, 2017 the bank earned a gross revenue of $29,120 from
interest revenue indicating further decrease in the amount of revenue earned. Thus, assuming that
the RPD approach is relevant it can be said from the gross revenue of the bank that the efficiency
of the bank has neither dropped nor increased. The bank has managed to hold on to its share in
the market despite competition in the industry. Net income of the bank in 2016-17 has been
$6,406 million compared to $7,271 million of 2013-14. This definitely indicates that though the
bank has managed to hold on its market share in the industry however, the increase in cost of
operations due to ever increasing competition I the market has eat into its profit over the years.
The graph below will explain the movements in four key competitive and performance indicators
of the ANZ bank.

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ACCOUNTING RESEARCH
2014-09 2015-09 2016-09 2017-09
-
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
30,000.00
35,000.00
Chart Title
Gross interest erevnue
Income income net of interest expenses
Earnings from continuous oerations before tax
Net icome after tax
As can be seen that though the gross revenue of the bank has remained more or less same over
the years the other performance yardsticks of the company have moved significantly.
Macquarie Bank:
Similar to the income statement analysis conducted on ANZ the following extracts of income
statement of the company would indicate the performance of the bank and how the competition
in the industry has affected the efficiency and performance of the bank. The statement below
contains items of revenue and expenses of the bank since 2014 to 2017.
MACQUARIE GROUP LTD INCOME STATEMENT
AUD in millions 2014-03 2015-03 2016-03 2017-03
Revenue from interests
Gross interest revenue 4,611
.00
5,009
.00
5,461
.00
5,138
.00

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ACCOUNTING RESEARCH
Less: Interest expense 4,611
.00
5,009
.00
5,461
.00
5,138
.00
Interest expense 2,906
.00
2,917
.00
3,182
.00
2,953
.00
Income net of interest expenses 1,705
.00
2,092
.00
2,279
.00
2,185
.00
Operating expenses
Expenses for compensation and benefits paid 3,736
.00
4,143
.00
4,244
.00
4,379
.00
Expenses on technology and communication
equipment
29
8.00
30
7.00
32
7.00
57
1.00
Amortization and depreciation 6
6.00
9
5.00
6
1.00
3
5.00
Other special charges 22
2.00
17
3.00
Other expenses (4,100.
00)
(4,545.
00)
(4,854.
00)
(5,158.
00)
Income before income taxes 1,705
.00
2,092
.00
2,279
.00
2,185
.00

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ACCOUNTING RESEARCH
Income taxes 82
7.00
89
9.00
92
7.00
86
8.00
Other income (expense) 38
7.00
41
1.00
71
1.00
90
0.00
Net income 1,265
.00
1,604
.00
2,063
.00
2,217
.00
Net income available to common shareholders 1,265
.00
1,604
.00
2,063
.00
2,217
.00
One of the positive signs for the bank is that the bank has managed to maintain sustainable
growth in its gross revenue from interests. In analysing the impact of competition in the market
the most important fact that is considered is the ability of an organization to earn revenue. RPD
approach assumes that the profitability of an organization in the industry is directly related to its
efficiency. Thus, in free market where the entry and exits of firms are common the ability of an
organization to earn revenue and profit from its business operations would be directly
proportionate to its efficiency. The bank has earned a gross revenue of $5,138 million in the
financial year ending on June 30, 2017 compared to $4,611 million in 2014. Thus, despite the
competition in the industry the ability of the bank to generate revenue from business has
remained intact. The income before taxes of the bank has also improved with each passing year.
In 2014 the bank managed to earn $1,705 million in earnings before taxes. In 2015 the bank
managed to increase its earnings before taxes to $2,092 million with further increase to $2,279
million in the next year ending on June 30, 2016. However, in 2017 the earnings before taxes has

16
ACCOUNTING RESEARCH
reduced a bit to $2,185 million. Considering that the RPD approach of Boone (2008) is effective
then the performance yardsticks of the bank indicate that the competition in the industry has no
adverse effects on the efficiency of the bank.
Movements in key performance indicators of the bank:
Taking into consideration the key performance indicators such as gross revenue from interests,
net interest revenue, income from continuous operations before tax and net income lets analyse
the impact of competition on the performance the bank. The table below contains the calculation
of movement in these key indicators over the years.
AUD in millions 2014-03 2015-03 2016-03 2017-03
Gross interest revenue 4,611.
00
5,009.
00
5,461.
00
5,138.
00
Increase in gross revenue / (Decrease) 398
.00
452
.00
(323.
00)
Income net of interest expenses 1,705.
00
2,092.
00
2,279.
00
2,185.
00
Increase in net interest revenue / (Decrease) 387
.00
187
.00
(94
.00)
Earnings from continuous operations before tax 1,705.
00
2,092.
00
2,279.
00
2,185.
00

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ACCOUNTING RESEARCH
Increase in net interest revenue / (Decrease) 387
.00
187
.00
(94
.00)
Net income after tax 1,265.
00
1,604.
00
2,063.
00
2,217.
00
Increase / (decrease) in net income 339
.00
459
.00
154
.00
Out of the last four years the bank has only suffered negative growth in gross revenue from
interests in the latest financial year ending on June 30, 2017. Thus, keeping that aside it is clear
that the efficiency of the bank has helped it to not only keep its market share but also to improve
on it. The net revenue from interests have also increased each year except in 2017. Earnings from
continuous operations before tax and net income of the bank over the last four years further
support the theory of improvement in efficiency of the bank to achieve significant growth in the
competitive banking and financial industry in the country. The graph below clearly supports the
conclusion about the bank’s improvement in competitive banking and financial industry in the
country.

18
ACCOUNTING RESEARCH
2014-09 2015-09 2016-09 2017-09
-
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
Chart Title
Gross interest erevnue
Income income net of interest expenses
Earnings from continuous oerations before tax
Net icome after tax
Since, 2014 each of the four key indicators, chosen to compare the performance of the bank in
respect to the competition in the industry, have improved to make it clear that if the efficiency as
per the RPD approach is directly related to the profitability of a business then, the bank has
improved its efficiency significantly and it is visible in its operating parameters.
Suncorp Bank:
In order to assess the competitive performance of Suncorp Bank it is imperative to appraise the
performance of the bank over the last four years. The extract of income statements of the banks
since the period ending on June 30, 2014 to the period of June 30, 2017 are provided below for
evolution of the performance of the bank in the competitive industry.
SUNCORP GROUP LTD INCOME STATEMENT
AUD in millions 2014-06 2015-06 2016-06 2017-06
Revenues
Revenue from Premiums 8,583. 8,553. 8,679. 8,899.

19
ACCOUNTING RESEARCH
00 00 00 00
Commissions and service fees received 458.
00
582.
00
568.
00
551.
00
Income from investments 697.
00
569.
00
171.
00
74.
00
Net capital gain / (loss) realized (160.
00)
91.
00
Other income (loss) 3,844.
00
3,500.
00
3,228.
00
3,055.
00
Total revenues 13,582.
00
13,204.
00
12,486.
00
12,670.
00
Benefits and claims paid 6,468.
00
6,200.
00
5,940.
00
5,948.
00
Selling, general and administrative 2,092.
00
1,671.
00
1,683.
00
1,808.
00
Interest expense 2,029.
00
1,816.
00
1,587.
00
1,442.
00
Cost of merger, acquisition and restructuring 60.
00

20
ACCOUNTING RESEARCH
Other expenses 1,818.
00
1,855.
00
1,709.
00
1,864.
00
Total benefits, claims and expenses 12,407.
00
11,542.
00
10,979.
00
11,062.
00
Income before income taxes 1,175.
00
1,662.
00
1,507.
00
1,608.
00
Income tax (expense) benefit (438.
00)
(522.
00)
(462.
00)
(523.
00)
Other income (expense) (7.
00)
(7.
00)
(7.
00)
(10.
00)
Net income 730.
00
1,133.
00
1,038.
00
1,075.
00
The impact of competition is clearly visible on the performance of the bank. Unlike Macquarie,
Suncorp has struggled to improve its efficiency to keep on improving its performance as per the
RPD approach developed by Boone (2008). Macquarie improved its operating performance each
year since 2014 whereas the performance of Suncorp has deteriorated each year since 2014.
Total gross revenue of $13,582 million earned by the bank from insurance premiums,
commission, fees and interests in 2014 has reduced to $12,670 million in 20174 with each year
experiencing decrease trend in the gross revenue in business.

21
ACCOUNTING RESEARCH
However, though the bank has failed to improve on its gross revenue but it has managed to
improve on its earnings before income tax as well as on its net income. Surprisingly, despite the
reduction in gross revenue over the years, both the income before income taxes and net income
of the bank have improved with passing of each year since 2014. In order to analyse the trends in
the performance of the bank better the following table would be helpful.
AUD in millions 2014-06 2015-06 2016-06 2017-06
Gross revenue 13,582.
00
13,204.
00
12,486.
00
12,670.
00
Increase in gross revenue / (Decrease) (378.
00)
(718.
00)
184.
00
Earnings from continuous operations before
tax
1,175.
00
1,662.
00
1,507.
00
1,608.
00
Increase in net interest revenue / (Decrease) 487.
00
(155.
00)
101.
00
Net income after tax 730.
00
1,133.
00
1,038.
00
1,075.
00
Increase / (decrease) in net income 403.
00
(95.
00)
37.
00

22
ACCOUNTING RESEARCH
The above computation makes it clear that though the bank has suffered continuous deterioration
in earning gross revenue from business but the profitability indicators of the bank have improved
since 2014. Compared to 2014 the increase in earnings before income taxes has increased by
$433 million in 2017. Similarly the amount of net income of the bank in 2017 of $1,075 million
has increased by $345 million from net income of 2014. The graphical representation would be
helpful in understanding the impact competition on gross revenue and profitability indicators of
the bank since 2014.
2014-09 2015-09 2016-09 2017-09
-
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
14,000.00
16,000.00
Chart Title
Gross revenue
Earnings from continuous oerations before tax
Net icome after tax
As can be seen that though the gross revenue columns have reduced almost every year but the
earnings from continuous operations before tax and net income after tax columns have increased
in each year. Boone’s approach of Relevant Profit Difference is based on the premise that the
efficiency and profitability of a business are directly related to each other and moves in the same
direction. Assuming that other conditions of perfect competition exists in the banking industry it
can be concluded that Suncorp has performed quite well under the competitive pressure despite
the inability of the firm to improve its revenue.

23
ACCOUNTING RESEARCH
Westpac Banking Corporation:
At the time of introduction of Westpac at the beginning of the document, it was mentioned that
the bank ranks second right behind the Commonwealth Bank of Australia in terms of market
capitalization. A closer look at the financial performance of the company over the years would
be extremely beneficial to understand how the competitive environment in the banking industry
has affected the performance of one of the largest banks in Australia. The response to
competition of such large bank would be visible on its financial performance over the years. The
extracts of income statements of the bank for last four years ending on June 30, 2017 contained
in the table below would help us in assessing the impact of increasing competition on the
performance of the bank.
WESTPAC BANKING CORP INCOME STATEMENT
AUD in millions 2014-09 2015-09 2016-09 2017-09
Revenue
Interest income
Interest income from Loans and Leases 29,104
.00
29,307
.00
28,953.
00
28,504
.00
Interest income on Deposits with banks 24
3.00
1
2.00
13
.00
25
8.00
Interest income from Other assets 2,901
.00
2,976
.00
2,856.
00
2,470
.00

24
ACCOUNTING RESEARCH
Gross interest revenue 32,248
.00
32,295
.00
31,822.
00
31,232
.00
Interest expense
Interest expenses for Deposits 11,499
.00
10,669
.00
9,369.
00
8,868
.00
Interest on Short-term borrowing 49
0.00
53
5.00
Expense (other) 6,717
.00
6,824
.00
7,305.
00
6,848
.00
Total interest expense 18,706
.00
18,028
.00
16,674.
00
15,716
.00
Income from interest net of interest expenditures 13,542
.00
14,267
.00
15,148.
00
15,516
.00
Commissions and fees 5,180
.00
5,170
.00
4,654.
00
2,755
.00
Fees for lending and deposits 1,193
.00
Securities gains (losses) (29
.00)
(36
.00)
(100.
00)
6
3.00

25
ACCOUNTING RESEARCH
Premium income 1,800
.00
Income (Other) 1,244
.00
1,195
.00
1,252.
00
17
9.00
Non-interest revenue in total 6,395
.00
6,329
.00
5,806.
00
5,990
.00
Net revenue 19,937
.00
20,596
.00
20,954.
00
21,506
.00
Credit loss provisions 85
3.00
Expenditures for compensation and benefits 4,667
.00
4,630
.00
4,601.
00
4,701
.00
Expenses of occupancy 125
.00
1,073
.00
Use of tech and communication equipment 1,449
.00
1,857
.00
2,041.
00
31
3.00
Expenses for professional and other expert
services
45
6.00
61
5.00
741
.00
75
5.00
Intangible assets amortization 21 1,272 787 82

26
ACCOUNTING RESEARCH
7.00 .00 .00 0.00
cost of merger, acquisition and restructuring 7
4.00
Other charges (Special) (77
.00)
4
9.00
1,348.
00
Other expenses 1,912
.00
56
5.00
(651.
00)
1,772
.00
Non-interest expenses in total 8,624
.00
9,062
.00
8,992.
00
9,434
.00
Earnings / (losses) before tax from continuous
operations
11,313
.00
11,534
.00
11,962.
00
11,219
.00
Income tax expense provision 3,115
.00
3,348
.00
3,184.
00
3,518
.00
Other income (expense) (637.
00)
(174.
00)
(1,333.
00)
28
9.00
Net income 7,561
.00
8,012
.00
7,445.
00
7,990
.00
From the above information let us calculate the movement in key performance indicators to
assess the impact of competition on the performance of the bank.

27
ACCOUNTING RESEARCH
The importance of banking system and efficiency of banks to the overall progress and
development of an economy has already been discussed earlier. Considering the four banks
chosen in this document are all providing banking, finance, insurance and asset management
related services a detailed competitive investigation into the affairs of these companies will
enlighten us about the performance and position of these companies in the market.
AUD in millions 2014-09 2015-09 2016-09 2017-09
Gross interest revenue 32,248.
00
32,295.
00
31,822.
00
31,232.
00
Increase in gross revenue / (Decrease) 47.
00
(473.
00)
(590.
00)
Income net of interest expenses 13,542.
00
14,267.
00
15,148.
00
15,516.
00
Increase in net interest revenue / (Decrease) 725.
00
881
.00
368.
00
Earnings from continuous operations before
tax
11,313.
00
11,534.
00
11,962.
00
11,219.
00
Increase in net interest revenue / (Decrease) 221.
00
428
.00
(743.
00)
Net income after tax 7,561. 8,012. 7,445. 7,990.

28
ACCOUNTING RESEARCH
00 00 00 00
Increase / (decrease) in net income 451.
00
(567.
00)
545.
00
The gross interest revenue of Westpac has reduced in last two financial years compared to the
gross interest revenue earned in 2014. In fact if the gross revenue from interest earned by the
bank in 2014 is considered then the decrease in gross revenue from interest is almost $1,016
million in 2017. The income before taxes of the bank has also reduced in 2017 to $11,219
million compared to $11,962 million in 2016. Thus, the income before tax of bank has declined
by $743 million in 2017. However, net income of the bank has increased in 2017 to $7,990
million from $7,445 million in 2016. In 2015, Westpac earned $8,012 million thus, if the net
income of 2015 is considered then the net income has declined in 2016 and 2017.
The RPD approach developed by Boone (2008) shows that line of efficiency and profitability
line of an organization would be parallel. Thus, with improvement in efficiency the firm in an
industry would be able to increase its profitability irrespective of competition in the market.
Considering the size and scale of operation of Westpac though the increase and decrease in
revenue and profitability of the bank over the last four years are relatively small but there even
such small difference in profitability and revenue of business should be considered to determine
the competitive environment in an industry.
Findings of empirical investigation and RPD calculation:
All the four banks are large and established banks in Australia. The contribution of these
banks in developing the banking and financial industry in the country is immense. It is true that

29
ACCOUNTING RESEARCH
the competition in banking industry in the country has increased significantly compared to the
past. In fact with each passing year and withdrawal of number of draconian rules and regulations
that were earlier present in banking industry the entry of new firms in the industry has increased
significantly.
The theory of RPD developed by Boone (2008) considers the relevant profit difference
between firms to measure the strengths of competition in an industry. A detailed investigation
into the financial performance of the four banks have shown that the performance of none of the
banks have either declined or enhanced extremely in last four years ending on June 30, 2017. All
the banks have more or less managed to hold on to their market shares in the industry. However,
does that mean the competition in the industry has remained unaltered in last four years? Well
the answer is absolutely no because it is impossible in a free and fair market place to have same
degree of competition without any change for continuous period of four years. The ability of
these banks to hold on to their position in the market can be viewed both positively as well as
negatively. The positive point of view can be the fact that despite increase in competitive
environment specific to banking and financial industry in the country, all these four banks have
more or less managed to hold on to their market shares and profitability. On the other hand the
sceptics can also made the point that the banks have been unable to improve their market
position in last four years and stagnating with same market share and profitability.
Using the following equation as provide by Boone (2008), relative profit difference of four banks
provided below:
Relevant profit difference between the four companies assuming these are the only four banks in
the industry is provided below:

30
ACCOUNTING RESEARCH
It has been assumed that Westpac is the most efficient and Suncorp is the least efficient firm in
the banking industry in the country. Thus, relative profit difference are provided below for the
four banks (Kar, 2016).
ANZ MAQ SUN Westp
ac
Relative profit difference (1,584.0
0)
(5,773.0
0)
(6,915.0
0) -
Assuming that the banking industry in the country only consists of the four banks mentioned in
this document lets calculate the relative profit difference between these companies over the last
four years. In order to calculate the relative profit difference between the four companies the net
income of the banks shall be taken.
AUD in millions 2014
ANZ MAQ SUN Westpa
c
Total net
income
Net income after tax 7,271.00 1,265
.00
73
0.00
7,561
.00
16,827.
00
Proportionate ratio of net income 0.43

31
ACCOUNTING RESEARCH
0.08 0.04 0.45
2015
ANZ MAQ SUN Westpa
c
Net income after tax 7,493.00 1,604
.00
1,133
.00
8,012
.00
18,242.
00
Proportionate ratio of net income 0.41
0.09 0.06 0.44
2016
ANZ MAQ SUN Westpa
c
Net income after tax 5,709.00 2,063
.00
1,133
.00
7,445
.00
16,350.
00
Proportionate ratio of net income 0.35
0.13 0.07 0.46
2017
ANZ MAQ SUN Westpa
c

32
ACCOUNTING RESEARCH
Net income after tax 6,406.00 2,217
.00
1,075
.00
7,990
.00
17,688.
00
Proportionate ratio of net income 0.36
0.13 0.06 0.45
In 2014 the ANZ earned 43% of the total profit relevant to the industry as compared to 8% and
4% by Macquarie and Suncorp. Westpac, however was the higher profit earner out of the four
with 45% of the total profit accounted for by the bank.
In 2015 both ANZ and Westpac surrendered little bit of profitability to relatively small two
banks, i.e. Macquarie and Suncorp. Macquarie and Suncorp accounted 9% and 6% of the total
profit of the industry respectively in 2015 compared to 8% and 4% of 2014. In 2016, however,
ANZ surrendered big chunk of its profitability as it only earned 35% of the total profit compared
to 43% in 2014. Both Macquarie and Suncorp gained from the loss of ANZ but the gain of
Macquarie was significantly higher than Suncorp. Macquarie earned 13% of the total
profitability of the four banks compared to 9% of 2015. In 2017 every company more or less
hold on to their profitability position (Kar, 2016).
Conclusion:
The relative profit difference and performance analysis of the four firms in the
document clearly shows that there is significant changes in the operating parameters of these four
banks over the last four years. The changes in the performances of these firms is not due to any
particular reason such as increase in competition but a combined effect of number of reasons
such as increase in competition, changes in customer preferences, changes in income level of the

33
ACCOUNTING RESEARCH
customers, availability of alternative products, changes in general inflation level in the country,
changes in efficiency in providing services by different banks and others.

34
ACCOUNTING RESEARCH
References:
Abel, S., Khobai, H., & Le Roux, P. (2017). Evaluating competition in the loan and deposit
market using the Boone indicator approach. Southern African Business
Review, 21(1), 274-291.
Kar, A. K. (2016). Measuring competition in microfinance markets: a new
approach. International Review of Applied Economics, 30(4), 423-440.

35
ACCOUNTING RESEARCH
Appendix:
Financial information:
ANZ INCOME STATEMENT
AUD in millions 2014-09 2015-09 2016-09 2017-09
Gross Revenue:
Revenue from interests 29,524.00 30,526.00 29,951.00 29,120.00
Gross interest erevnue 29,524.00 30,526.00 29,951.00 29,120.00
Less: Interest expense
Interestv expense 15,714.00 15,910.00 14,856.00 14,162.00
Income income net of interest expenses 13,810.00 14,616.00 15,095.00 14,958.00
Revenue other than interests
Fess and commision received 3,011.00 3,170.00 3,053.00 2,863.00
Income (others) 3,942.00 2,973.00 2,980.00 3,916.00
Non-interest revenue in total 6,953.00 6,143.00 6,033.00 6,779.00
Net revenue 20,763.00 20,759.00 21,128.00 21,737.00
Credit loss provisions 986.00 1,179.00 1,929.00 1,198.00
Noninterest expenses
Expenses for compensation and benefits paid 5,088.00 5,479.00 5,541.00 5,178.00
Expenses on technoogy and communication equipment 690.00 730.00 734.00 911.00
Fees paid to professionals 253.00 360.00 450.00 469.00
Amortization costs 89.00 88.00 83.00
Cost of merger, acqusition, and retructuring 113.00 31.00 278.00 62.00
Extraordinay charges 43.00 17.00 27.00
Other expenses 2,050.00 2,358.00 2,742.00 2,761.00
Total expenses (Non-interest) 8,326.00 9,063.00 9,855.00 9,381.00
Earnings from continuous oerations before tax 11,451.00 10,517.00 9,344.00 11,158.00
Provision (benefit) for taxes 3,025.00 3,026.00 2,458.00 3,206.00
Other income (expense) (1,155.00) 2.00 (1,177.00) (1,546.00)
Net icome after tax 7,271.00 7,493.00 5,709.00 6,406.00
Preferred dividend 6.00 1.00
earninsg available to common shareholders 7,265.00 7,492.00 5,709.00 6,406.00

36
ACCOUNTING RESEARCH
MACQUARIE GROUP LTD INCOME STATEMENT
AUD in millions 2014-03 2015-03 2016-03 2017-03
Revenue from interests
Gross interest erevnue 4,611.00 5,009.00 5,461.00 5,138.00
Less: Interest expense 4,611.00 5,009.00 5,461.00 5,138.00
Interestv expense 2,906.00 2,917.00 3,182.00 2,953.00
Income income net of interest expenses 1,705.00 2,092.00 2,279.00 2,185.00
Operating expenses
Expenses for compensation and benefits paid 3,736.00 4,143.00 4,244.00 4,379.00
Expenses on technoogy and communication equipment 298.00 307.00 327.00 571.00
Amortization and depreciation 66.00 95.00 61.00 35.00
Other special charges 222.00 173.00
Other expenses (4,100.00) (4,545.00) (4,854.00) (5,158.00)
Income before income taxes 1,705.00 2,092.00 2,279.00 2,185.00
Income taxes 827.00 899.00 927.00 868.00
Other income (expense) 387.00 411.00 711.00 900.00
Net income 1,265.00 1,604.00 2,063.00 2,217.00
Net income available to common shareholders 1,265.00 1,604.00 2,063.00 2,217.00
SUNCORP GROUP LTD INCOME STATEMENT
AUD in millions 2014-06 2015-06 2016-06 2017-06
Revenues
Revenue from Premiums 8,583.00 8,553.00 8,679.00 8,899.00
Commissions and service fees received 458.00 582.00 568.00 551.00
Income from investments 697.00 569.00 171.00 74.00
Net capital gain / (loss) realized (160.00) 91.00
Other income (loss) 3,844.00 3,500.00 3,228.00 3,055.00
Total revenues 13,582.00 13,204.00 12,486.00 12,670.00
Benefits and claims paid 6,468.00 6,200.00 5,940.00 5,948.00
Selling, general and administrative 2,092.00 1,671.00 1,683.00 1,808.00
Interest expense 2,029.00 1,816.00 1,587.00 1,442.00
Cost of merger, acqusitio and restructuring 60.00
Other expenses 1,818.00 1,855.00 1,709.00 1,864.00
Total benefits, claims and expenses 12,407.00 11,542.00 10,979.00 11,062.00
Income before income taxes 1,175.00 1,662.00 1,507.00 1,608.00
Income tax (expense) benefit (438.00) (522.00) (462.00) (523.00)
Other income (expense) (7.00) (7.00) (7.00) (10.00)
Net income 730.00 1,133.00 1,038.00 1,075.00

37
ACCOUNTING RESEARCH
WESTPAC BANKING CORP INCOME STATEMENT
AUD in millions 2014-09 2015-09 2016-09 2017-09
Revenue
Interest income
Interest income from Loans and Leases 29,104.00 29,307.00 28,953.00 28,504.00
Interest income on Deposits with banks 243.00 12.00 13.00 258.00
Interest income from Other assets 2,901.00 2,976.00 2,856.00 2,470.00
Gross interest revenue 32,248.00 32,295.00 31,822.00 31,232.00
Interest expense
Interest expenses for Deposits 11,499.00 10,669.00 9,369.00 8,868.00
Interest on Short-term borrowing 490.00 535.00
Expense (other) 6,717.00 6,824.00 7,305.00 6,848.00
Total interest expense 18,706.00 18,028.00 16,674.00 15,716.00
Income from interest net of interest expenditures 13,542.00 14,267.00 15,148.00 15,516.00
Commissions and fees 5,180.00 5,170.00 4,654.00 2,755.00
Fees for lending and deposits 1,193.00
Securities gains (losses) (29.00) (36.00) (100.00) 63.00
Premium income 1,800.00
Income (Other) 1,244.00 1,195.00 1,252.00 179.00
Non-interest revenue in total 6,395.00 6,329.00 5,806.00 5,990.00
Net revenue 19,937.00 20,596.00 20,954.00 21,506.00
Credit loss provisions 853.00
Expenditures for compensation and benefits 4,667.00 4,630.00 4,601.00 4,701.00
Expenses of occupancy 125.00 1,073.00
Use of tech and comunication equipment 1,449.00 1,857.00 2,041.00 313.00
Expenses for professional and other expert services 456.00 615.00 741.00 755.00
Intangible assets amortization 217.00 1,272.00 787.00 820.00
cost of merger, acqusitio and restructuring 74.00
Other charges (Special) (77.00) 49.00 1,348.00
Other expenses 1,912.00 565.00 (651.00) 1,772.00
Non-interest expenses in total 8,624.00 9,062.00 8,992.00 9,434.00
Earninsg / (losses) before tax fro continuous operations 11,313.00 11,534.00 11,962.00 11,219.00
Income tax expenes provision 3,115.00 3,348.00 3,184.00 3,518.00
Other income (expense) (637.00) (174.00) (1,333.00) 289.00
Net income 7,561.00 8,012.00 7,445.00 7,990.00