Australia's four pillars of optimism
Australia's banking sector has its eyes firmly fixed on the year 2007. That is when the current 20 per cent foreign investment limit in China's domestic banks will be lifted.
Australia's four leading banks are constrained by the inability to merge with each other and by a limited domestic market of 20 million people. So they are viewing mainland China, albeit cautiously, as a potential financial gold mine. That is no wonder, given that the mainland's banking sector has about US$4.5 trillion in assets and some US$1.6 trillion in bank deposits.
So the results of a recent survey on Chinese attitudes to foreign banks will no doubt give the Australian banking sector some cause for optimism. In a poll of 4,000 people by Beijing-based market research firm dragondata, 63 per cent of respondents said a foreign partner would make their bank more reliable; 67 per cent said an alliance would result in better products.
According to dragondata, Australian financial institutions and business generally are seen in a favourable light by mainland consumers. The survey will provide the Australian banking sector with reassurance that foreign banks are going to be welcomed by Chinese customers.
This is good news for the 'big four' Australian banks that dominate the domestic market here. These banks - Commonwealth, ANZ, National and Westpac - are constrained from further growth by a government policy called the 'four pillars' rule, introduced 23 years ago.
The policy was designed to prevent any of these banks from merging with each other. Given the Australian community's hostility to the conduct of banks - particularly in relation to branch closures in rural areas - it is not a policy that is likely to be overturned any time soon.
One of the outcomes of this policy has been that some of the four major banks have ventured offshore to build markets. These ventures have, so far, resulted in a mixed bag of success and failure.
And Australia's banks have largely failed to invest in Asia, according to the Australian Graduate School of Management's Owen Young. According to Mr Young, 'as of September 2004, almost 80 per cent of Australian banks' total foreign exposures were in three similar countries: New Zealand [44 per cent], the UK [26 per cent] and the US [9 per cent].
'Only 7 per cent were in developing countries and offshore centres [including Hong Kong and Singapore].'
Mr Young rightly notes that the sheer size of the mainland's banking sector makes it a 'must have' investment for Australian banks come 2007. Two of the four big Australian banks have already begun to invest seriously in the mainland. But these banks have a mixed track record of investments overseas in the past two decades. And China's banks are carrying bad loans estimated at between US$200 billion and US$400 billion - almost 40 per cent of economic output - according to a recent report. So one can expect the Australian banks to exercise some degree of caution.
Greg Barns is a political commentator in Australia and a former Australian government adviser
