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Australian banks face new conqueror Add to ...

From the FT's Lex blog

They came, they saw...then they went away again. Australia’s stable banking market has always attracted foreign interest, but it hasn’t lasted. Europe’s banks have halved their share of business lending Down Under since 2008. Now Asian banks are stepping up. But this group is no more likely to conquer, in terms of building a real long-term presence, than most of their predecessors.

Japanese banks are leading the charge. This is no surprise, their own market is far duller even than Australia’s. They also have huge deposits that dwarf their loan books in ways that Europeans can only dream about. And the Aussies’ net interest margins, generally at or above 2 per cent for the biggest four, look mouthwatering; they are roughly twice the average among Japan’s big banks in recent years.

The Europeans’ retrenchment certainly leaves space: their share of business lending has halved to about 7 per cent in less than four years, according to the Reserve Bank of Australia. Asian banks have climbed steadily to 5 per cent. There is further opportunity in that the big four Aussies could be constrained by their dependence on debt markets for funding. Nomura calculates that if the assets of each grew about 5 per cent a year and deposits at 7 per cent, each would still need about A$30bn of long-term funding a year. That’s hard to count on.

Then there is a mining and gas boom that needs funding. Cue Bank of Tokyo-Mitsubishi UFJ, which has been advertising for staff for a new Perth office, to open next month.

But Australians have seen this more than once. Foreigners currently hold about 12 per cent of banking assets - roughly the level they held in the early 1990s when the market was liberalised. By inching into Australia, however logical, Japan’s banks are hardly displaying a boldness indicative of real ambition. That would involve committing to a new market (Asia is hardly short of demographically attractive ones) and helping develop it, not just taking an opportunity to nibble at someone else’s lunch.

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