Australia’s Big Four Banks Rapidly Descending In To Big Two

Post by Sharat on December 2, 2009 · Under Australian Economy, Business News, Company News, Mergers & Acquistions, banking · Comment

Australia’s official “four pillars” banking policy or Big Four banks is rapidly descending into a “two pillars and two stumps” or Big Two unofficial policy, as Commonwealth Bank of Australia and Westpac consolidate their lead by increasing market share, grabbing 80 per cent of credit growth according to October half year figures.

According to data from the Australian Prudential Regulation Authority (APRA), October credit data shows a mixed picture, with regional lenders continuing to retreat and lose market share.

There was a $43 billion contraction in lending by regional and international lenders during the six months ending in October, which was offset by a $53 billion expansion in lending by the Big Four.

80 per cent of the expansion in lending by the Big Four came from CBA and Westpac who accounted for $42 billion of the $55 billion in credit growth a UBS report suggests.

Westpac and CBA have emerged as the clear market leaders, taking advantage of the global financial crisis to make opportunistic acquisitions such as CBA’s takeover of Bankwest or building market share as a result of mergers engineered prior to the onset of the crisis, such as Westpac’s $12 billion takeover of St George.

In May last year, Mike Smith, chief executive of ANZ joked that the Four Pillars ban on big-bank mergers had evolved into a policy prescription for “two pillars and two stumps”.

Graeme Samuel the competition regulator said at the time that he had reservations about approving CBA’s acquisition of Bankwest and said it was “not one we had been very happy about”.

The Australian Competition & Consumer Commission (ACCC) chief said the regulators hand had been forced in the face of pressure from the central bank and APRA, who were extremely worried about the precarious state of HBOS, Bankwest’s parent.

The previous ACCC chief Allan Fels, says he is mainly concerned with the overall state of competition within the banking industry as a result of almost complete dominance of the industry by the Big Four, rather than the breakdown of market share between them.

“But having said that, banks are much more free of competition now than they were, so that puts more of a spotlight on fluctuations in market share between the majors. At this stage, though, it’s too early to say if there’s going to be a continuous market-share trend in favour of the top two. Hopefully, in a competitive market, the other two will try and come back.” Professor Fels said.

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