Australia Commercial Banking Report

Q2 2014
www.businessmonitor.com
AUSTRALIA
COMMERCIAL BANKING REPORT
INCLUDES 5-YEAR FORECASTS TO 2018
ISSN 2041-5532
Published by:Business Monitor International
Australia Commercial Banking
Report Q2 2014
INCLUDES 5-YEAR FORECASTS TO 2018
Part of BMIs Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: February 2014
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CONTENTS
BMI Industry View ............................................................................................................... 7
Table: Commercial Banking Sector Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table: Commercial Banking Sector Key Ratios, November 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table: Annual Growth Rate Projections 2013-2018 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table: Ranking Out Of 71 Countries Reviewed In 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table: Commercial Banking Sector Indicators, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SWOT .................................................................................................................................... 9
Commercial Banking .................................................................................................................................. 9
Political ................................................................................................................................................. 10
Economic ............................................................................................................................................... 11
Business Environment .............................................................................................................................. 12
Industry Forecast .............................................................................................................. 14
Rising Loan Losses And Regulatory Burdens To Increase Costs ...................................................................... 15
Domestic Economic Weakness To Weigh On Revenue Growth ........................................................................ 16
Industry Risk Reward Ratings .......................................................................................... 17
Developed States Commercial Banking Risk/Reward Ratings ........................................................................... 17
Table: Developed States Commercial Banking Risk/Reward Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Market Overview ............................................................................................................... 19
Developed States Commercial Banking Outlook ............................................................................................ 19
Table: Banks' Bond Portfolios, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table: Comparison of Loan/Deposit & Loan/Asset & Loan/GDP Ratios, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table: Comparison of Total Assets & Client Loans & Client Deposits (US$bn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Table: Comparison of US$ Per Capita Deposits, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Macroeconomic Forecasts ......................................................................................................................... 21
Ongoing Misallocation Of Capital Increases Risks ....................................................................................... 23
Increasing Pressures For Greater Macro-Prudential Rules ............................................................................ 24
Table: Australia - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Competitive Landscape .................................................................................................... 27
Market Structure ..................................................................................................................................... 27
Protagonists .......................................................................................................................................... 27
Table: Protagonists In Australia's Commercial Banking Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Definition Of The Commercial Banking Universe ......................................................................................... 27
List Of Banks ......................................................................................................................................... 28
Table: Major Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Table: Other Domestic Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Company Profile ................................................................................................................ 29
Bendigo and Adelaide Bank ....................................................................................................................... 29
Australia Commercial Banking Report Q2 2014
Business Monitor International Page 4
Table: Stock Market Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Table: Balance Sheet (AUDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Table: Balance Sheet (US$mn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
AMP Bank .............................................................................................................................................. 33
Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Westpac Banking Corporation ................................................................................................................... 36
Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
National Australia Bank ............................................................................................................................ 39
Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Commonwealth Bank of Australia ............................................................................................................... 43
Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Australia and New Zealand Banking Group .................................................................................................. 46
Table: Key Ratios (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Global Industry Overview .................................................................................................. 49
Global Commercial Banking Outlook .......................................................................................................... 49
Regional Outlooks .................................................................................................................................. 50
Demographic Forecast ..................................................................................................... 54
Demographic Outlook .............................................................................................................................. 54
Table: Australia's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Table: Australia's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Table: Australia's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Table: Australia's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Methodology ...................................................................................................................... 58
Industry Forecast Methodology ................................................................................................................ 58
Sector Specific Methodology .................................................................................................................... 59
Risk/Reward Ratings Methodology ............................................................................................................ 60
Sector Specific Methodology .................................................................................................................... 61
Table: Commercial Banking Risk/Reward Rating Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Weighting ............................................................................................................................................. 62
Table: Weighting Of Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
BMI Industry View
Table: Commercial Banking Sector Indicators
Date
Total
assets
Client
loans
Bond
portfolio Other
Liabilities and
capital Capital
Client
deposits Other
November 2012, AUDbn 2,967.0 2,028.3 137.5 801.2 2,967.0 192.0 1,714.8 1,060.1
November 2013, AUDbn 3,188.5 2,123.8 165.0 899.7 3,188.5 203.0 1,864.9 1,120.6
% change y-o-y 7.5% 4.7% 20.1% 12.3% 7.5% 5.7% 8.7% 5.7%
November 2012, US$bn 3,093.7 2,114.9 143.4 835.4 3,093.7 200.2 1,788.0 1,105.4
November 2013, US$bn 2,904.1 1,934.3 150.3 819.5 2,904.1 184.9 1,698.5 1,020.6
% change y-o-y -6.1% -8.5% 4.9% -1.9% -6.1% -7.7% -5.0% -7.7%
Source: BMI; Central banks; Regulators
Table: Commercial Banking Sector Key Ratios, November 2013
Loan/deposit ratio Loan/asset ratio Loan/GDP ratio GDP Per Capita, US$ Deposits per capita, US$
113.88% 66.61% 136.7% 67,433.6 72,841.1
Rising Falling Rising n.a. n.a.
Table: Annual Growth Rate Projections 2013-2018 (%)

Assets Loans Deposits
Annual Growth Rate 3 2 5
CAGR 3 1 5
Ranking 60 68 57
Table: Ranking Out Of 71 Countries Reviewed In 2014
Loan/deposit ratio Loan/asset ratio Loan/GDP ratio
15 17 8
Local currency asset growth Local currency loan growth Local currency deposit growth
66 68 56
Table: Commercial Banking Sector Indicators, 2011-2018
2011 2012 2013e 2014f 2015f 2016f 2017f 2018f
Total assets, AUDbn 2,821.8 2,964.7 3,083.3 3,083.3 3,268.3 3,366.3 3,467.3 3,571.3
Total assets, US$bn 2,880.7 3,081.5 2,867.5 2,528.3 2,549.3 2,524.7 2,600.5 2,678.5
Client loans, AUDbn 1,953.0 2,034.3 2,095.4 2,053.5 2,094.5 2,157.4 2,200.5 2,233.5
Client loans, US$bn 1,993.8 2,114.5 1,948.7 1,683.8 1,633.7 1,618.0 1,650.4 1,675.1
Client deposits, AUDbn 1,589.8 1,726.2 1,829.7 1,902.9 1,979.1 2,097.8 2,202.7 2,312.8
Client deposits, US$bn 1,623.0 1,794.2 1,701.7 1,560.4 1,543.7 1,573.3 1,652.0 1,734.6
e/f = estimate/forecast. Source: BMI; Central banks; Regulators
SWOT
Commercial Banking
Australia Commercial Banking SWOT
Strengths

Strong fiscal accounts and plans for a pre-funded bail-out fund limit will help impact
on wider economy in the event of a financial crisis.
Increasing geographic reach in Asia Pacific markets.
Reserve Bank of Australia has put in place safety nets, such as the Committed
Liquidity Fund, to ensure sufficient liquidity in the financial system.
Weaknesses

Banks rely heavily on overseas borrowing.
High exposure to bubbly domestic residential real estate market.

Opportunities

Opportunities for overseas acquisitions, although concentrated nature of domestic
market and political considerations make further mergers at home unlikely.
Expansion into growing markets of Asia.

Threats

General decline of asset quality as Australian economy slows and house prices
decline.
Further deterioration in Chinese economy could put pressure on the Australian mining
sector.
Dependence on external funding makes Australia vulnerable to a liquidity crisis.

Political
SWOT Analysis

Strengths

Australia is a mature democracy with a broadly stable party system.
Economic stability over recent years supports the current political system and radical
groups are unlikely to gain substantial support.
Weaknesses

As one of the region's largest and most stable states, the country attracts many
refugees and economic migrants. The issue is a key source of domestic tension and
has been hotly debated in parliament in recent times as the capsizing of a boat led to
the death of a number of refugees. The issue continues to be debated in the federal
parliament with no sign of political parties co-operating to find an alternative that
would ensure the safe passage and fair processing of the refugees, while reducing the
possibility of people smuggling.
The fragility of the state governments' finances compared to the large infrastructure
projects that they need to undertake has led to questions with regards to the
compatibility of the federal-state system with the country's current development
needs.
Opportunities

Australia has historically enjoyed close military ties with the US. However, with the
rise of regional economic powers such as China, it will need to balance competing
military and economic ties.
Threats

Australia's early support for the US 'War on Terror', among other things, has made
Australians abroad a target for Islamic extremists.
Australia's close alliance with the US, particularly under John Howard, has left a
lingering feeling among some Asian governments that it is America's 'deputy sheriff'
in the region.
Economic
SWOT Analysis

Strengths

A free-market economy supported by a highly educated workforce.
Blessed with rich natural resources, Australia's economic activity has been
augmented by demand for commodity exports and the investments made in the
mining sector.
Weaknesses

The persistent current account deficit increases vulnerability to capital flows and, by
extension, currency volatility.
The export basket is highly concentrated in commodities, and consequently exposes

the economy and currency to fluctuations in world prices for metals, coal and
agricultural goods.
Opportunities

The rapid expansion of Asian economies in recent years offers new opportunities for
diversifying trading ties from core European markets.
A low level of government debt has provided a certain amount of flexibility in fiscal
policy to support domestic demand through the downturn.
Threats

The high level of private sector debt - especially mortgage loans - fuelled by overseas
funding poses a threat to sustained growth.
A collapse in exports from a drop in resource demand from China and other resource-
hungry countries would severely impact headline GDP growth.
Australia is vulnerable to extreme weather that may lead to droughts and floods,
which have become increasingly severe in past years as a result of global climate
change.
Business Environment
SWOT Analysis

Strengths

A highly educated workforce and comparatively modern transport infrastructure
underpin economic prospects.
A number of free trade agreements with countries such as New Zealand, Thailand and
the US serve as a boon for trading activities.
Weaknesses

Despite its openness, Australia requires the Foreign Investment Review Board to
approve any commercial real estate investment by a foreign company or individual
valued at US$5mn or more.
With a population of just over 22mn, the domestic consumer base is small by regional
standards.
Opportunities

Australia is currently in talks with China, Malaysia, the Gulf Co-operation Council,
Indonesia, India, Japan and South Korea regarding potential bilateral free trade
agreements. It is also part of negotiations for the Trans-Pacific Partnership and a
regional south pacific pact, PACER plus.
Upgrade and expansion of urban infrastructure will be needed to sustain population

growth in Australia's main cities, providing opportunities for public-private
partnerships in the future. The government is also targeting infrastructure
improvements to rural areas.
More healthcare infrastructure will be needed to support the ageing population, and
with the introduction of the federal government's National Disability Insurance
Scheme, the industry is likely to see increasing demand for services.
Threats

Corporate taxes for foreign investors in Australia remain higher than in other
countries, and it seems unlikely that the government will succeed to reduce the rates
in the near future.
Recent investment proposals by Chinese firms regarding the agricultural and resource
extraction sector have raised fears that strategic assets will be lost to foreign players.
This has led to more conditions attached to the sale agreements, which is likely to
SWOT Analysis - Continued
reduce the attractiveness of these assets. It remains to be seen if the recent
implementation of a database to increase transparency around foreign-owned
Australian assets will spur more regulation.
Industry Forecast
BMI View: We believe that the trend of strong profit and dividend growth will not be sustained in 2014 as
the sector's outperformance has been underpinned by declines in non-performing loans and growth in
mortgage lending, both of which are unlikely to persist amidst a quickly softening job market. Together with
the growing risk of greater compliance costs from increasingly burdensome regulation, we believe that the
reprieve from future interest rate cuts delivered by the Reserve Bank of Australia (RBA) will only be
temporary. Hence, we maintain our bearish outlook for Australian banking equities, expecting them to
underperform the broader equity index.
We maintain our downbeat outlook for Australian banking equities despite the positive earnings growth
reported by three of the four major financial institutions for the quarter ending December 2013. So far, all
three banks have reported greater declines in non-performing loans as a key driver of the strong financial
performance. Going forward, however, we see factors such as rising loan losses driving up costs, while the
weakening economy weighs on revenues as demand for credit declines.
Softening Job Market Suggests Non-Performing Loans To Rise
Australia - Job Market Indicators (LHS), Wage & Residential Property Index (% chg y-o-y)
Source: BMI, ABS
Rising Loan Losses And Regulatory Burdens To Increase Costs
We believe that financial institutions are likely to see their cost increase, from both rising loan losses and
compliance costs. With joblessness on the rise and the pace of wage growth slowing to its lowest point since
the series begun in 1997, these indicators suggest that households' ability to repay may decline, making
further boosts to profits from lower loss provisioning for loans in 2014 unlikely.
Moreover, with greater regulation underway, we expect the costs relating to compliance to rise (for more
details see, 'Stability Concerns To Spur Regulation Drive', November 21 2013). Indeed, apart from the
Australian Prudential Regulatory Authority's keenness to implement liquidity reforms proposed under Basel
III framework (such as the Liquidity Coverage Ratio and Net Stable Funding Ratio which will raise the cost
of capital and funding for banks), the ruling coalition commissioned a sector-wide inquiry in December
2013. Within this inquiry, we believe that greater regulation is likely to emerge given the increasing
adoption of electronic payment systems and the use of virtual currencies (such as the Bitcoin). As such,
while the interest rate cuts that we forecast the Reserve Bank of Australia (RBA) to deliver could provide
some reprieve, we believe the boost will be temporary given the rising regulatory costs for the industry.
Highly Exposed To The Local Economy
Australia - % of Revenues From Australia For The Largest Four Banks
*Net revenues used due data limitations; Source: BMI, Various annual reports, Bloomberg
Domestic Economic Weakness To Weigh On Revenue Growth
At the same time, the sector's high level of exposure to the domestic economy and limited overseas assets
suggest very little upside potential for earnings growth in the coming year. This is clear from results for the
fiscal year 2012/13 (July-June), where three out of the four major banks reported more than 79% of their
revenues from Australia (note: only net revenue data was available for Australia and New Zealand
Banking Group). Thus, given our expectations for domestic economic activity to slow further in 2014, we
expect credit demand to weaken, which suggests limited growth on the revenue side of the ledger. Together
with mounting costs, we maintain our downbeat outlook for Australian banking equities, expecting them to
underperform the broader equity index.
Industry Risk Reward Ratings
Developed States Commercial Banking Risk/Reward Ratings
Commercial Banking Risk/Reward Rating Methodology
Since Q108, we have described numerically the banking business environment for each of the countries
analysed by BMI. We do this through our Commercial Banking Industry Risk/Reward Rating (IRR), a
measure that ensures we capture the latest quantitative information available. It also ensures consistency
across all countries. Like all of BMI's Industry Risk/Reward Ratings, its takes into account the Rewards on
offer within the banking sector in a given country, but also the Risks to investors being able to realise those
opportunities. The overall Rating is weighted 70% towards Rewards and 30% towards Risks.
Within the Rewards category, we look at factors that are specific to the banking industry (accounting for
60% of the score within this category), and elements that relate to that country in general (accounting for
40% of the weighting). These include, but are not limited to, total assets, asset and loan growth, GDP and
taxation. Likewise on the Risks side, we look at industry-specific Risks (weighted 40% of the Risks total)
and country-specific Risks (weighted 60%). These include, but are not limited to, the regulatory framework
and environment, the competitive environment, financial risk, legal risk and policy continuity.
In general three aspects need to be borne in mind when interpreting the IRRs. The first is that the Industry
Rewards element is the most heavily weighted of the four elements, accounting for 42% (60% of 70%) of
the overall Rating. Second, if the Industry Rewards score is significantly higher than the Country Rewards
score, within the Rewards category, it usually implies that the banking sector is (very) large and/or
developed relative to the general wealth, stability and financial infrastructure in the country. Conversely, if
the industry score is significantly lower, it usually means that the banking sector is small and/or
underdeveloped relative to the general wealth, stability and financial infrastructure in the country. Third,
within the Risks category, the industry-specific elements (i.e. how regulations affect the development of the
sector, how regulations affect competition within it, and Moody's Investor Services' ratings for local
currency deposits) can be markedly different from BMI's long-term Country Risk rating for a given market.
Table: Developed States Commercial Banking Risk/Reward Ratings

Limits of Potential Returns Risks to Potential Returns Overall

Market Structure Country Structure Market Risks Country Risks Rating Ranking
Australia 46.7 85.0 93.3 78.0 68.6 28
Austria 56.7 75.0 86.7 80.0 69.6 25
Canada 80.0 85.0 100.0 80.0 83.8 4
France 86.7 82.5 93.3 74.0 84.0 3
Germany 80.0 82.5 93.3 80.0 82.3 8
Italy 76.7 72.5 93.3 70.0 76.3 13
Spain 73.3 77.5 86.7 68.0 75.1 15
Switzerland 73.3 95.0 96.7 82.0 83.8 5
UK 90.0 92.5 100.0 72.0 88.7 2
United States 93.3 85.0 100.0 82.0 89.8 1
Eurozone 93.3 77.5 66.7 48.0 77.5 11
Scores out of 100, with 100 the highest. Source: BMI
Market Overview
Developed States Commercial Banking Outlook
Table: Banks' Bond Portfolios, 2012

Bond Portfolio, US$bn Bond as % total assets Year-on-year growth %
Australia 145.0 4.7 29.3
Austria 40.3 3.3 9.6
Canada 230.1 5.9 -8.3
France 828.7 8.3 0.1
Germany 1,469.0 14.4 -2.9
Italy 674.9 13.0 22.0
Spain 795.7 18.1 7.7
Switzerland 151.5 4.9 8.2
UK 244.9 1.9 -6.5
United States 533.5 4.1 18.4
Eurozone 2,001.2 5.0 16.6
Source: Central banks, regulators, BMI
Table: Comparison of Loan/Deposit & Loan/Asset & Loan/GDP Ratios, 2014

Loan/Deposit
ratio % Rank Trend
Loan/Asset
ratio % Rank Trend
Loan/GDP
ratio % Rank Trend
Australia 107.9 15 Falling 66.6 17 Falling 126.5 9 Falling
Austria 119.7 3 Falling 45.2 59 Rising 131.1 8 Falling
Canada 116.8 7 Falling 43.3 62 Falling 93.7 18 Falling
France 103.0 21 Falling 25.2 70 Falling 102.9 14 Rising
Germany 113.3 10 Falling 51.8 45 Rising 139.7 7 Falling
Italy 75.1 58 Falling 35.0 66 Falling 93.6 19 Falling
Spain 95.8 35 Rising 67.6 71 Rising 183.2 15 Rising
Switzerland 92.4 33 Falling 20.1 11 Rising 101.9 4 Rising
UK 87.4 41 Falling 67.4 12 Rising 295.0 1 Falling
United States 103.2 20 Rising 72.6 6 Rising 60.3 38 Rising
Comparison of Loan/Deposit & Loan/Asset & Loan/GDP Ratios, 2014 - Continued

Loan/Deposit
ratio % Rank Trend
Loan/Asset
ratio % Rank Trend
Loan/GDP
ratio % Rank Trend
Eurozone 108.8 13 Rising 57.3 37 Rising 198.5 3 Rising
Table: Comparison of Total Assets & Client Loans & Client Deposits (US$bn)

2014 2013

Total Assets Client Loans Client Deposits Total Assets Client Loans Client Deposits
Australia 2,528.3 1,683.8 1,560.4 2,867.5 1,948.7 1,701.7
Austria 1,197.7 541.2 452.2 1,260.5 568.5 473.6
Canada 3,837.0 1,663.1 1,424.5 3,865.1 1,691.6 1,394.7
France 10,626.6 2,674.9 2,595.9 11,009.4 2,776.7 2,668.7
Germany 9,418.4 4,883.0 4,311.6 10,173.7 5,068.8 4,381.6
Italy 5,273.7 1,845.3 2,457.8 5,544.6 1,993.3 2,514.5
Spain 3,774.2 2,551.6 2,662.6 4,178.7 2,568.5 2,905.6
Switzerland 2,796.8 561.8 607.8 2,770.4 550.1 578.9
UK 11,918.2 8,032.2 9,193.7 11,978.1 7,921.3 9,022.3
United States 15,001.6 10,897.2 10,558.9 14,020.2 10,136.9 9,868.2
Eurozone 42,231.0 24,209.4 22,261.1 44,009.6 24,768.1 23,175.9
Table: Comparison of US$ Per Capita Deposits, 2014

GDP Per Capita
Client Deposits, per
capita
Rich 20% Client
Deposits, per capita
Poor 80% Client
Australia 61,782 66,035 264,138 16,509
Austria 49,197 42,429 212,145 13,259
Canada 52,363 40,097 160,390 10,024
France 42,127 40,159 160,637 10,040
Germany 42,978 41,733 208,663 13,041
Italy 32,787 40,246 160,982 10,061
Spain 30,061 56,571 226,283 14,143
Comparison of US$ Per Capita Deposits, 2014 - Continued

GDP Per Capita
Client Deposits, per
capita
Rich 20% Client
Poor 80% Client
Switzerland 67,106 74,507 298,029 18,627
UK 42,624 144,808 579,230 36,202
United States 56,067 32,732 130,930 8,183
Eurozone 37,018 66,511 266,045 16,628
Macroeconomic Forecasts
BMI View: Several domestic and external factors have served to boost the level of economic activity in
Australia. While we revised up our GDP growth forecasts for 2014 to 2.0% from 1.8% previously, this
change masks our concerns for the ever-growing risks within the Australian economy. Given that an
increasing proportion of capital is being invested in the housing sector despite the weak performance of
business spending, (a turnaround in which is required to generate wage growth), this misallocation of
capital increases the economy's vulnerability to external shocks, on top of the ongoing weakness in the
mining sector.
Since the September elections, the Australia economy has recorded an uptick in activity levels and business
sentiment from the lows recorded earlier in 2013, supported by both domestic and external factors.
Domestically, prospects of lower regulatory burden, ranging from taxes to various regulatory procedures,
have helped lift the outlook for certain industries, such as oil and gas. Moreover, September's readings of
the performance indices showed that deterioration in the services and construction sectors were moderating,
while activity in the manufacturing sector posted expansion in both September and October. The expansion
recorded in the new order sub-indices for the manufacturing and construction sectors further suggests that
this recent up-tick in activity could persist in the near term.
Signs Of Life
Australia - Performance Of Manufacturing, Services And Construction Sector Indices
Source: BMI; Australian Industry Group
Externally, efforts by the Chinese authorities to stimulate their economy and the decision of the US Federal
Reserve to postpone any reduction to its ongoing unconventional monetary stimulus have helped lift key
commodity prices and import volumes, such as iron ore, from their earlier lows in June. Together with
domestic factors, these trends suggest that economic growth could hold up until Q214, and as such, we have
raised our 2014 forecast, expecting real GDP growth to come in at 2.0% versus our previous estimates of
1.8%. This upgrade, however, masks our downbeat medium-term outlook for the economy as risks of a
sharp deflationary shock to the Australian economy continue to grow larger.
Households Driving Debt Demand
Australia - Total Private Sector Credit Growth (% chg y-o-y) & Growth Contribution From
Components (pp)
Source: BMI; Reserve Bank of Australia
Ongoing Misallocation Of Capital Increases Risks
As we have highlighted before, Australia's high level of external portfolio debt makes its currency very
vulnerable to external shocks. With much of this debt extended to the financial sector, the risks that a re-
pricing of the creditworthiness of banks or a similar liquidity squeeze as seen in 2008-09 could have a
significant impact on the Australian economy. Moreover, via the banks, much of this liquidity has continued
to flow into the housing sector, even as households owe roughly two-thirds of the total private sector debt in
the country that currently towers at 140.4% of GDP. In comparison, businesses have reined in their use of
credit despite the Reserve Bank of Australia's (RBA) easing its cash rate, cutting 50 basis points (bps) to
bring the cash rate to 2.50% as of end-October.
Divergent Performance Unlikely To Persist
Australia - House Price Indices For Queensland, Sydney, Australia
Source: BMI; RP Data
Indeed, attribution analysis of the drivers of credit growth clearly shows the ongoing misallocation of
capital within the Australia, where ever more liquidity is headed to the housing sector, driving up property
prices. Although some observers have accredited the uneven house price growth in the different states to
differing underlying supply and demand dynamics in each area, we believe that these factors are unlikely to
hold up in the face of a weaker job market. We believe that demand for goods and services remain uncertain
at best, and see room for input prices such as wages to head lower. Growth from the mining sector is likely
to slow further as demand for resources tapers. As such, until businesses restart spending and hiring, we
believe the current uptick in activity will be limited, and hence, we maintain that the current trajectory of
house prices is built on shaky fundamentals and could correct should renewed worries of the economy come
to the fore and/or the financial sector find itself in another funding squeeze.
Increasing Pressures For Greater Macro-Prudential Rules
Given the disproportionate flows into the housing sector, we believe that there the RBA, in conjunction with
the banking regulator, the Australian Prudential Regulatory Authority (APRA), will find it increasingly
attractive to put in place macro-prudential rules and other limits to rein lending to the household sector.
Indeed, as banks were announcing their quarterly earnings result at the end of October, the APRA warned
the sector of handing out excessive dividends to shareholders, and further cautioned that it was looking at
implementing a higher capital charge on domestic systematically important banks (DSIB).
Private Consumption: The mining sector slowdown is expected to weigh on overall economic growth in
the country, which is likely to affect wage growth as well. Given that many businesses have adopted the
wait and see approach to hiring and spending, we believe that softness in the job market is likely to persist,
and weigh on household consumption. As such, we maintain our outlook for private consumption growth to
slow from 3.7% in 2012 to 1.5% and 1.3% in 2013 and 2014 respectively.
Private Investment: We have long implied a slow growth in investment as business credit has remained
slow, despite the aggressive rate cuts by the central bank this year, and cost cuts within industries like the
auto manufacturers suggest that investment could remain weak. The tapering off of iron ore and coal
investments will similarly weigh on fixed capital investment growth. That said, we have upgraded our
forecast 2014 slightly to better reflect the accelerating pace of construction for several gas terminals,
expecting fixed-capital formation to grow at 2.0% in 2014 versus 1.2% previously.
Public Consumption And Investment: The new coalition government remains keen on pushing through
its infrastructure and spending plans even though this is likely to raise the amount of public debt. While we
maintain our outlook for the government expenditure on goods and services (not infrastructure) to growth
by 2.0% in 2013 and 2014, we highlight that upside risks could increase in 2014 should the economy falter
once again.
Net Exports: While the stimulus in China helped lift its domestic steel industry and, correspondingly,
Australian iron ore exports from contractionary territory in the near term, we believe that the ongoing
rebalancing within the Chinese economy will lead to a gradual decline in demand for certain Australian
commodity exports. Moreover, ongoing construction of gas terminals in Australia is likely to put upward
pressure on import growth over 2014-2017. As such, we believe that the country's trade balance will see a
much more gradual improvement in 2014, and we forecast real export and import growth to rise to 4.5%
and 2.7% respectively, compared to estimates of 2.3% and 1.4% in 2013.
Table: Australia - Economic Activity

2008 2009 2010 2011e 2012e 2013f 2014f 2015f 2016f 2017f
Nominal GDP,
AUDbn 1,3
1,233 1,255 1,356 1,445 1,488 1,560 1,624 1,704 1,799 1,902
Nominal GDP, US
$bn 1,3
1031 980 1245 1491 1541 1536 1421 1363 1376 1427
Real GDP growth,
% change y-o-y
2,3
2.8 1.1 2.9 2.2 3.7 2.4 2 2.5 2.8 3
GDP per capita,
US$ 1,3
48,120 44,870 56,895 66,785 68,351 67,434 61,782 58,702 58,686 60,267
Population, mn 4 21.6 22 22.4 22.7 23.1 23.3 23.6 23.9 24.2 24.5
Industrial
production index,
% y-o-y, ave 3
2.3 -0.1 3.9 -0.6 3.6 2.5 1.2 1.6 2.1 2
Unemployment,
% of labour force,
eop 3
4.6 5.5 4.9 5.2 5.4 6 6.6 6.1 5.7 5.5
Notes:
e
BMI estimates.
f
BMI forecasts.
1
Calendar Years;
2
Calendar Years, Base Year = FY2008/09 (July-June).
Sources:
3
ABS/BMI calculation;
4
World Bank/UN/BMI.
Competitive Landscape
Market Structure
Protagonists
Table: Protagonists In Australia's Commercial Banking Sector
Central bank: Reserve Bank of Australia (RBA)
www.rba.gov.au
The RBA's main responsibility is monetary policy. Policy decisions are made by the Reserve Bank Board, with the aim of
achieving low and stable inflation over the medium term. Its other major roles are maintaining financial system stability
and promoting safety and efficiency in the payments system. The RBA is an active participant in financial markets,
manages Australia's foreign reserves, issues Australian currency and acts as banker to the government.
Principal banking regulator: Australian Prudential Regulation Authority (APRA)
www.apra.gov.au
APRA is the regulator of the Australian financial services industry. It oversees banks, credit unions, building societies,
general insurance and reinsurance companies, life insurance companies, mutual societies and most members of the
superannuation industry.
Banking trade association: Australian Bankers' Association (ABA)
www.bankers.asn.au
The ABA works with its members to provide analysis, advice and advocacy, and contributes to the development of
public policy on banking and other financial services. The association aims to ensure the banking system can deliver the
benefits of competition to Australian banking customers.
Definition Of The Commercial Banking Universe
The Australian Prudential Regulation Authority lists 21 Australian-owned banks, eight foreign subsidiary
banks, 41 branches of foreign banks, nine domestic building societies and 85 credit unions operating in the
country, as of December 2013.
List Of Banks
Table: Major Banks
Australia and New Zealand Banking Group
Commonwealth Bank of Australia
National Australia Bank
Westpac Banking Corporation
Source: APRA, BMI
Table: Other Domestic Banks
AMP Bank
Bank of Queensland
Bendingo and Adelaide Bank
Community CPS Australia
Defence Bank
Heritage Bank
Macquarie Bank
MECU
Members Equity Bank
Police Bank
Police Financial Services (BankVic)
Police & Nurses (P&N Bank)
QT Mutual Bank
Rural Bank
Suncorp-Metway
Teachers Mutual Bank
Victoria Teachers Mutual Bank
Source: APRA, BMI
Company Profile
Bendigo and Adelaide Bank
SWOT Analysis
Strengths

Strong regional loyalty.
The bank has a sound credit quality, a balance sheet with a low level of risk and a
high quality capital base.
Total assets increased over the twelve-month period to June 2013.
The bank has achieved some of the best customer satisfaction levels in the industry in
recent years.
Weaknesses

Higher cost of funding than larger rivals.
Significant costs involved in integrating Adelaide Bank, the weaker half of the merger.
Operating in an environment that favours the 'big four' Australian banks.

Opportunities

Room to expand geographically.
Boasts an improving Tier 1 capital ratio.

Threats

Increasing squeeze on interest margins as the cost of funding remains relatively high.
Potential for increased regulation in 2014.

Company Overview
The Bendigo and Adelaide Bank Group was formed in November 2007 as a result of the
merger between Bendigo Bank and Adelaide Bank. A publicly listed company, the
group is owned by more than 90,000 shareholders. Bendigo Bank is represented in all
states and territories with almost 900 outlets, including more than 190 company-owned
branches, 275 locally-owned Community Bank branches, 90 agencies and 1,900 ATMs.
The bank had a staff of 6,500 as of June 2013.
The bank's retail arm, Bendigo Bank, provides banking and wealth management
services to individuals and small to medium businesses (SMEs). Through Adelaide
Bank, the group operates a substantial wholesale banking business, providing
mortgages to a large number of Australians via a network of brokers and mortgage
managers. In addition, Adelaide Portfolio Lending funds aged care and third party credit
providers. The bank is working to improve cooperation between the divisions, with over
100,000 Adelaide Bank retail customers transferred to the core Bendigo Bank platform
in FY2013.
The group also participates in a range of joint ventures, including Rural Bank and
Community Sector Banking. Bendigo and Adelaide Bank has assets under management
of more than AUD60.3bn and a market capitalisation of around AUD4bn.
In August 2009, Bendigo and Adelaide Bank purchased Tasmanian Perpetual Trustees'
50% share of their joint venture company Tasmanian Banking Services (TBS), and in
2011 acquired the Australian subsidiary of Bank of Cyprus, renaming it Delphi Bank
later that year. The bank has stated that a key focus for the year ending June 2014 is to
work towards achieving full Basel II Advanced Accreditation, adding that this could lead
to an increase in costs in the short-term.
Corporate
Highlights
Bendigo and Adelaide Bank posted a sharp 80.7% y-o-y increase in net profit to
AUD352.3mn in full-year 2013 (ending June 30 2013) from the disappointing
AUD195mn in FY12, when net income was affected by a AUD95.1mn goodwill write-off
for the margin lending business. Cash earnings were US$340mn as of June 2013, up by
7.7% y-o-y from US$323mn a year earlier.
The balance sheet saw an improvement throughout the twelve-month period with total
assets increasing by 5.3% y-o-y to AUD60.3mn, up from AUD57.2mn in FY12. Similarly,
total liabilities rose by 5.2% y-o-y to AUD55.8mn. During the year to the close of June
2013, the bank's Tier 1 capital ratio improved to 9.25% up from 8.39% a year earlier,
while the total capital ratio also increased, from 10.4% to 10.7%, over the same period.
Bendigo and Adelaide Bank is given an 'A-' score by credit rating agencies Standard &
Poor's and Fitch, and 'A2' by Moody's, each with a stable outlook.
Company Data

Website: www.bendingoadelaide.com.au
Status: Public Listed Company

Table: Stock Market Indicators
2006 2007 2008 2009 2010 2011 2012 2013 19-Feb-2014
Market Capitalisation AUD 1,912 3,798 2,997 3,515 3,626 3,133 3,465 4,877 4,889
Market Capitalisation US$ 1,507 3,330 2,112 3,156 3,709 3,213 3,597 4,354 4,414
Share Price AUD 13.75 14.57 10.86 9.84 9.95 8.03 8.50 11.75 11.78
Share Price US$ 10.84 12.77 7.65 8.83 10.18 8.23 8.83 10.49 10.63
Share Price US$, % change (eop) 27.7 17.8 -40.1 15.5 15.2 -19.1 7.2 18.9 n.a.
Change, year-to-date n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 1.4
Shares Outstanding (mn) 143 146 278 312 361 367 402 412 n.a.
Source: Bendingo and Adelaide Bank Limited, Bloomberg
Table: Balance Sheet (AUDmn)
2006 2007 2008 2009 2010 2011 2012 2013
Total Assets 15,196 17,002 48,049 47,114 52,141 55,005 57,238 60,282
Loans & Mortgages 12,437 13,844 39,575 38,216 42,937 45,867 48,139 49,957
Total Deposits 13,600 15,231 31,405 31,880 37,076 40,521 44,573 47,439
Total Shareholders' Equity 900 1,015 3,298 3,119 3,880 3,960 4,218 4,434
Earnings per share (AUD) 0.80 0.81 0.87 0.25 0.67 0.92 0.49 0.85
Table: Balance Sheet (US$mn)
2006 2007 2008 2009 2010 2011 2012 2013
Total Assets 11,280 14,453 45,978 38,045 44,148 58,910 58,583 54,983
Loans & Mortgages 9,232 11,768 37,869 30,859 36,354 49,124 49,270 45,566
Total Deposits 10,095 12,948 30,051 25,743 31,392 43,398 45,620 43,269
Total Shareholders' Equity 668 863 3,156 2,518 3,286 4,241 4,317 4,044
Earnings per share (US$) 0.60 0.64 0.78 0.19 0.59 0.91 0.50 0.87
Table: Key Ratios (%)
2006 2007 2008 2009 2010 2011 2012 2013
Return on Assets 0.8 0.8 0.6 0.2 0.5 0.6 0.3 0.6
Return on Equities 15.3 13.5 9.4 2.4 7.3 9.1 4.8 8.4
Loan Deposit Ratio 91.6 91.0 126.2 120.2 116.1 113.5 108.3 105.6
Loan Asset Ratio 82.0 81.5 82.5 81.4 82.6 83.6 84.3 83.1
Equity Asset Ratio 5.3 5.5 6.5 6.2 6.8 6.9 7.0 7.0
Total Risk Based Capital Ratio 10.8 10.2 10.4 10.9 11.2 10.6 10.4 10.7
Tier 1 Capital Ratio 8.3 8.0 7.5 7.4 8.6 7.9 8.4 9.3
AMP Bank
SWOT Analysis
Strengths

The backing of Australia's largest wealth management company.
Access to lower-cost funding through various government stimulus schemes.
Offers a wide range of financial products and services.

Underlying profit increased during the 2012 full-year.
Weaknesses

As a banking unit, AMP is small and limited in scope compared to the four largest
banks.
High exposure to residential real estate markets.

Opportunities

Expansion of banking services, although the market is already mature.
Expansion of distribution networks for other financial services.
Synergies from merger with AXA Asia Pacific Holdings.
Total assets rose to AUD118.75bn in 2012.

Threats

Deteriorating credit quality and slower loan growth.
Potential for increased regulation of banking sector.
Potential for a housing market correction in some cities.

Company Overview
Since 1849 AMP Bank has offered commercial banking services. The company's
products include home loans, savings and investments accounts, and credit cards. It
operates as a subsidiary of AMP Ltd, Australia's largest wealth management company.
In March 2011, AMP merged with the Australian and New Zealand businesses of AXA
Asia Pacific Holdings. It has more than 5,800 employees across Australia, New Zealand
and Asia and more than 6 million customers. The group's assets under management hit
AUD173bn in 2012.
The AMP group offers a wide range of financial products and services including
retirement savings and income, investments, superannuation, financial planning,
insurance and banking.
In August 2013, AMP appointed a new CEO Craig Meller to take over the retiring Chris
Dunn. Shortly after the change in leadership, the bank created two new business
divisions - insurance and superannuation, and advice and banking - while streamlining
its management teams as part of Meller's effort to run a leaner operation.
Corporate
Highlights
AMP Limited's net profit attributable to shareholders for the 2012 full-year came in at
AUD704mn, up from AUD688mn in 2011 though still down from the AUD775mn
recorded in 2010. Underlying profit for the year rose 5% to AUD955mn compared to
2011 (though that year only included a nine-month contribution from AXA Australia and
New Zealand after the merger in March 2011).
The lender's total assets rose 7.7% y-o-y to AUD118.75bn by the end of 2012, up from
AUD110.29bn as of December 31 2011.
Company Data

Website: www.amp.com.au
Status: Subsidiary of AMP Limited, which is a Public Listed Company.


2007 2008
2009 2010 2011 2012
Total Assets 105,309 86,750 89,830 91,605 110,290 118,751
Loans & Mortgages 99,150 80,641 84,171 85,120 96,972 106,263
Total Deposits 52,357 41,150 47,239 48,579 52,940 58,385
Total Shareholders' Equity 2,014 2,117 2,634 2,998 6,897 7,531
Source: AMP Bank, BMI

2007 2008
Total Assets 8,083 7,593
Loans & Mortgages 7,153 6,793
Total Deposits 2,263 2,790
Total Shareholders' Equity 192 118
Source: AMP Bank, Bloomberg

2007 2008
Return on Assets n.a. 0.3
Return on Equities n.a. 14.3
Loan Deposit Ratio 316.3 243.6
Loan Asset Ratio 88.5 89.5
Equity Asset Ratio 2.4 1.6
Source: AMP Bank, Bloomberg
Westpac Banking Corporation
SWOT Analysis
Strengths

One of the dominant banking franchises in Australia.
Access to lower cost funding through government support during the crisis.
Offers a wide range of products and services.

Maintains offices in key financial centres.
Weaknesses

Higher exposure to the residential real estate market than rivals.
Opportunities

Further expansion in Australia through Lloyd's acquisition.
Looking to increase its footprint in SME lending.
Expenses kept under control in FY13.
Posted a 14% y-o-y increase in net profit for FY13.

Threats

Slower loan growth.
Potential for increased regulation in 2014.

Company Overview
Westpac is one of the big four dominant banking franchises in Australia. It was the
country's first bank, established as the Bank of New South Wales in 1817. It has around
12mn customers and a strategic focus on Australia, New Zealand and the near-Pacific
region. The bank offers a wide range of services in retail, business and institutional
banking. It has financial centres in London, New York, Hong Kong and Singapore, and
over 1,500 branches mainly concentrated in Australia, New Zealand, and the Pacific
Islands.
Westpac grew after its merger with the much smaller St George Bank in December
2008. The bank has five key divisions: Westpac retail and business banking, St George
Bank, BT Financial Group (all Australia-based), Westpac Institutional Bank and Westpac
New Zealand.
As at September 30 2013, the Westpac Group employed approximately 36,000 people
(full time equivalent basis) in Australia, New Zealand and around the world, and had
global assets of AUD696bn. Westpac is ranked in the top five listed companies by
market capitalisation on the Australian Securities Exchange Limited (ASX).
In October 2013, Westpac announced that it would acquire select businesses from the
UK's Lloyd's Bank Australian operations, for an estimated AUD1.45bn, to be financed
internally. The bank said it would have a minimal impact on its capital ratios, but should
deliver a boost to cash earnings from FY15.
In January 2014, Westpac was crowned the world's most sustainable company at the
World Economic Forum in Davos, the only Australian company to feature in the top 10.
Corporate
Highlights
Westpac's net profit attributable to shareholders for the 2013 full-year (ending
September 30, 2013) came in at AUD6.82bn, up 14% from AUD5.97bn a year earlier.
This reflects strong performances across all major business divisions (overall net
operating income was up 3.6% y-o-y), sharply lower impairment charges (down 30.1%
y-o-y) and well managed expense growth (up just 0.2% y-o-y).
Also during the 2013 full-year the bank strengthening its balance sheet, with total assets
growing by 3.2% y-o-y to reach AUD696.6bn at end September 2013. Loans and
advances to individuals and businesses increased by 4.2% y-o-y, while deposits were
up 7.5% y-o-y to reach AUD424.5bn.
The bank's Common Equity Tier 1 capital ratio under Basel III standards also improved
in FY13 to reach 9.1%, up from 8.2% a year earlier. The lender's total capital adequacy
ratio rose to 12.3% from 11.7%.
Company Data

Website: www.westpac.com.au

2006 2007 2008 2009 2010 2011 2012 2013 19-Feb-2014
Share Price AUD 24.09 27.75 16.87 25.15 22.08 19.88 25.88 32.38 32.91
Share Price US$ 18.99 24.33 11.89 22.58 22.59 20.39 26.87 28.91 29.72
Shares Outstanding (mn) 1,835 1,860 1,890 2,935 2,983 3,024 3,075 3,096 n.a.
Source: Westpac Banking Corporation, Bloomberg
2006 2007 2008 2009 2010 2011 2012 2013
Total Assets 299,578 377,653 439,676 589,587 618,277 670,228 674,965 696,603
Loans & Mortgages 234,484 275,377 313,545 463,459 477,655 496,609 514,445 536,164
Total Deposits 167,741 202,054 233,730 329,456 337,385 370,278 394,991 424,482
Total Shareholders' Equity 16,098 17,831 19,471 36,571 40,118 43,808 46,219 47,481
2006 2007 2008 2009 2010 2011 2012 2013
Total Assets 223,635 334,525 347,432 521,077 597,008 651,730 701,019 650,418
Loans & Mortgages 175,042 243,929 247,763 409,605 461,224 482,903 534,303 500,616
Total Deposits 125,219 178,979 184,693 291,173 325,779 360,058 410,238 396,339
2006 2007 2008 2009 2010 2011 2012 2013
Return on Assets 1.1 1.0 0.9 0.7 1.1 1.1 0.9 1.0
Loan Asset Ratio 78.7 73.3 71.8 79.4 78.0 74.7 76.8 77.5
National Australia Bank
SWOT Analysis
Strengths

One of the dominant banking franchises in Australia.
Cash earnings increased by 9.2% in FY13.

Asset quality improving across key business sectors.
Weaknesses

Exposure to weaker market conditions from its subsidiaries in the UK and the US.
Opportunities

Acquisitions and strengthening of its insurance and funds management businesses.
Acquisition of Aviva Australia's wealth management business showed a willingness to
invest even during the downturn.
Disposal of UK brands could provide a capital injection and exit from a sometimes
unstable market.
Potential for growth in Asia Pacific region.

Threats

Sluggish loan growth.
Potential for greater regulation.

Company Overview
National Australia Bank Group is a financial services organisation with over 12.4mn
customers and 42,000 employees, operating more than 1,800 stores and Service
Centres globally. It is one of the four dominant banking franchises in Australia, and has
a strong international presence, notably in the UK and the US through acquisitions, but
also New Zealand and Asia.
The NAB Group provides a comprehensive and integrated range of financial products
and services. In Australia, it owns the funds management business MLC and Aviva's
wealth management business, including its life insurance operations and leading
platform Navigator. In the UK, it owns Clydesdale Bank and Yorkshire Bank, in New
Zealand, it owns the Bank of New Zealand and in the US it owns Great Western Bank.
However, media reports say NAB may be looking to offload its UK operations, which
have been a drag on group profits in recent years.
As part of an effort to improve efficiency and focus on digital banking, in recent years
NAB has slowly scaled down its network of branches and ATMs in Australia, holding
1,819 and 4,613 respectively at the end of FY13.
In March 2013, NAB updated its key strategic outline, adding an emphasis on
technology to digitise and simplify the business operations and deliver an improved
service for clients. The bank will continue to focus primarily on its Australian franchise,
while expanding operations in Asia.
Corporate
Highlights
The banking group's consolidated profits on a cash basis increased by 9.2% y-o-y from
2012 to reach AUD5.94bn in FY13 (ending September 30 2013), largely attributable to
2.0% increase in net operating income and 26% y-o-y reduction in provisions for bad
loans. Net after-tax profit attributable to shareholders stood at AUD5.45bn.
Total assets rose to AUD808.43bn at end FY13, up from AUD763.10bn a year prior.
Loans and advances to customers rose by 4.4% y-o-y to AUD411.98bn, while deposits
were up 6.1% to AUD445.57bn over the same period.
At end FY13, the lender's Common Equity Tier 1 capital ratio, calculated for the first
time under Basel III international standards, stood at 8.43%, compared to the Basel II
Core Tier 1 ratio of 8.29% in FY12. The total capital adequacy ratio rose to 11.80%
from 11.67% over the same period.
NAB has world class credit ratings at the top agencies, rated 'Aa2' by Moody's and
'AA-' by Fitch and Standard&Poor's, each with a stable outlook.
Company Data
Website:
www.nabgroup.com.au
www.nab.com.au
Status:
Public Listed Company

2006 2007 2008 2009 2010 2011 2012 2013 19-Feb-2014
Share Price AUD 24.09 27.75 16.87 25.15 22.08 19.88 25.88 32.38 32.91
Share Price US$ 18.99 24.33 11.89 22.58 22.59 20.39 26.87 28.91 29.72
Source: National Australia Bank Limited, Bloomberg
2006 2007 2008 2009 2010 2011 2012 2013
Total Assets 299,578 377,653 439,676 589,587 618,277 670,228 674,965 696,603
Loans & Mortgages 234,484 275,377 313,545 463,459 477,655 496,609 514,445 536,164
Total Deposits 167,741 202,054 233,730 329,456 337,385 370,278 394,991 424,482
2006 2007 2008 2009 2010 2011 2012 2013
Total Assets 223,635 334,525 347,432 521,077 597,008 651,730 701,019 650,418
Loans & Mortgages 175,042 243,929 247,763 409,605 461,224 482,903 534,303 500,616
Total Deposits 125,219 178,979 184,693 291,173 325,779 360,058 410,238 396,339
2006 2007 2008 2009 2010 2011 2012 2013
Return on Assets 1.1 1.0 0.9 0.7 1.1 1.1 0.9 1.0
Loan Asset Ratio 78.7 73.3 71.8 79.4 78.0 74.7 76.8 77.5
Commonwealth Bank of Australia
SWOT Analysis
Strengths

One of Australia's dominant banking groups, with one of the strongest brands in the
sector.
Strong footprint across Asia.
Weaknesses

Export-oriented business customers face challenging conditions.
High exposure to real estate.

Opportunities

Group assets continue to increase.
Expansion in the rapidly growing Asian market, building on existing operations in

countries such as China and Indonesia.
Set to open new branches in Indonesia.
Slight increase in net profits during the 2013 fiscal year.

Threats

Operating expenses increase by 4% y-o-y in FY13.
Deteriorating credit quality and slower loan growth.

Company Overview
Commonwealth Bank of Australia (CBA) provides integrated financial services including
retail banking, premium banking, business banking, institutional banking, funds
management, superannuation, insurance, investment and share broking products and
services. It is one of the largest companies on the Australian Stock Exchange and is
included in the MSCI World index.
The bank has a growing international presence through subsidiary banks in New
Zealand (ASB) and Indonesia (Commonwealth Bank Indonesia), and investments in
China, with a 20% stake in Qilu Bank and Hangzhou City Commercial Bank. CBA also
has branches in the UK, USA, Hong Kong, India, and Singapore, as well as
representative offices in Beijing, Shanghai, and Hanoi.
As of June 30 2013, CBA had 1,166 branches across Australia, over 3,700 Australia
Post agencies, more than 4,300 ATMs nationwide, and 44,969 employees. At the same
time, the bank owned 25% of market share for mortgage loans, and over 28% market
share for household deposits.
In December 2013 the bank began to roll out its new mobile banking app for iPhone
and Android platforms, as part of its efforts to remain a market leader in pioneering
mobile technology and, in particular, the 'mobile wallet revolution'.
Corporate
Highlights
The bank posted net profit after tax on a cash basis up by 10% y-o-y in the 12-month
period ending June 2013 (FY13) to AUD7.8bn. The Group delivered a strong Return on
Equity (ROE) performance of 18.4%, again on a cash basis. Within this, net interest
income increased 6% y-o-y to AUD13.94bn, reflecting 4% growth in average interest
earning assets and a four basis point increase in net interest margin. Other banking
income was up by 7% y-o-y to AUD4.22bn, while operating expenses increased by 4%
y-o-y to AUD9.61bn in 2012, driven by inflation-related salary increases and costs of
new technology.
The group's total assets meanwhile increased by 5% over the prior year to reach
AUD753.9bn at end FY13, despite relatively subdued underlying credit growth. The
bank's Common Equity Tier 1 capital ratio, in accordance with international Basel III
standards, stood at 11% at end FY13, above the sector average of 9.6%.
Company Data

Website: www.commbank.com.au

2006 2007 2008 2009 2010 2011 2012 2013 19-Feb-2014
Share Price AUD 49.48 59.10 28.90 54.85 50.77 49.22 62.18 77.80 74.35
Share Price US$ 39.01 51.81 20.37 49.24 51.94 50.48 64.56 69.45 67.13
Change, year-to-date n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. -3.3
Source: Commonwealth Bank of Australia, Bloomberg
2006 2007 2008 2009 2010 2011 2012 2013
Total Assets 369,103 440,157 487,572 620,372 646,330 667,899 718,859 753,876
Loans & Mortgages 257,959 313,545 361,282 466,631 493,459 500,057 525,682 556,648
Total Deposits 171,817 215,715 262,117 360,147 368,903 397,084 432,410 453,857
2006 2007 2008 2009 2010 2011 2012 2013
Total Assets 273,985 374,177 466,558 500,950 547,248 715,320 735,752 687,610
Loans & Mortgages 191,483 266,545 345,711 376,805 417,812 535,561 538,036 507,719
Total Deposits 127,540 183,379 250,820 290,819 312,350 425,277 442,572 413,963
2006 2007 2008 2009 2010 2011 2012 2013
Return on Assets 1.1 1.1 1.0 0.9 0.9 1.0 1.0 1.0
Loan Asset Ratio 70.2 71.5 74.4 76.0 77.2 75.6 73.8 74.4
Australia and New Zealand Banking Group
SWOT Analysis
Strengths

One of the dominant banking groups of Australia.
Significant and growing presence in Asia Pacific markets outside Australia and New
Zealand.
Still has the lowest reliance of Australia's leading lenders on offshore markets to fund
its lending.
Weaknesses

Loan growth is expected to remain slow as Australian economic growth is soft.
Opportunities

Expansion in existing markets in Asia Pacific.
Expanding footprint in SME lending.
Set to spend hundreds of millions of dollars on technology over the next five years.
Threats

Potential for increased regulation of banking sector.
Any new financial shock to regional economies in the global financial climate.
Company Overview
Australia and New Zealand Banking Group (ANZ) is one of the 'four pillars' of the
Australian banking system that dominate the market. At end-2013 ANZ had around
10mn customers in 33 countries and employs 47,500 people. It offers a full range of
banking services to individuals and corporations, with a focus on the Asia Pacific
region. Its aim is to become 'a super-regional bank in the next five years', using its
strong position in Australia and New Zealand to support further regional expansion, with
a goal of drawing 25-30% of profits from the region by 2017. As of September 2013,
84% of the group's profits still came from Australia and New Zealand.
ANZ Group operates in 33 countries across Australia, New Zealand, the Pacific, Europe,
Dubai, USA and Asia including its technology and operations centre in Bangalore, India.
ANZ shares and related securities are listed on the Australian and New Zealand
exchanges.
In 2013 ANZ Group was named Bank of the Year in Asia Pacific, Australia, Laos, and
Cambodia by The Banker magazine. It also received approval that year from The
People's Bank of China to act as market maker for direct trading of AUD-CNY on the
China Foreign Exchange Trading System, and has confirmed that it will open a new
branch in the Shanghai Free Trade Zone. This follows becoming the first Australian bank
to receive a renminbi retail license from China, in 2012.
Corporate
Highlights
For the fiscal year ending September 2013, ANZ posted profits attributable to
shareholders of AUD6.27bn, equivalent to a 10.8% y-o-y rise on 2012, and supported
by a 5% hike in net interest income, to AUD12.76bn. Total annual operating income,
meanwhile, lifted 4% to AUD18.44bn, while operating expenses fell by 3% to
AUD8.24bn.
ANZ Group's total assets rose by 9% to AUD703.0bn at end-FY13, from AUD642.1bn a
year earlier. Over the same period, net loans and advances increased by 10% to
AUD469.3bn, while deposits were up 11% to AUD439.7bn.
At end September 2013, the bank had a Core Tier 1 capital ratio, calculated to
international Basel III standards, of 10.4%, while the total capital adequacy ratio
remained stable at 12.2%. The bank has strong credit ratings from all the main
agencies: AA- (Standard & Poor's and Fitch) and Aa2 (Moody's), each with a stable
outlook.
Company Data

Website: www.anz.com

2006 2007 2008 2009 2010 2011 2012 2013 19-Feb-2014
Share Price AUD 28.21 27.46 15.29 22.88 23.35 20.53 25.05 32.23 31.62
Share Price US$ 22.24 24.07 10.77 20.54 23.89 21.05 26.01 28.77 28.55
Change, year-to-date n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. -0.8
Source: Australia and New Zealand Banking Group Limited, Bloomberg
2006 2007 2008 2009 2010 2011 2012 2013
Total Assets 334,640 392,773 470,293 476,987 531,703 604,213 642,127 702,991
Loans & Mortgages 253,261 288,879 333,954 331,447 351,297 394,738 424,548 467,541
Total Deposits 172,394 206,720 251,513 276,556 296,986 352,900 383,686 426,072
2006 2007 2008 2009 2010 2011 2012 2013
Total Assets 249,809 347,918 371,626 421,561 513,412 587,537 666,913 656,383
Loans & Mortgages 189,059 255,889 263,890 292,933 339,212 383,843 440,936 436,543
Total Deposits 128,692 183,113 198,746 244,420 286,770 343,160 398,496 397,823
2006 2007 2008 2009 2010 2011 2012 2013
Return on Assets 1.2 1.1 0.8 0.6 0.9 0.9 0.9 0.9
Loan Asset Ratio 76.3 74.1 71.8 70.4 67.0 66.1 66.8 67.1
Global Industry Overview
Global Commercial Banking Outlook
We are forecasting accelerating loan growth in 2014 in 40 of 72 commercial banking sectors covered by
BMI, led by developed countries including the US, UK, and various eurozone member states. Conversely,
in many emerging markets, we project decelerating loan growth, including in China, India, and Brazil
(emerging European banking sectors including Russia are notable exceptions). In line with this divergence,
one of our global themes for 2014 is that emerging market countries face a credit hangover at some point in
the immediate future. Developed markets have undergone a severe deleveraging since 2008, starting with
the US and spreading to Europe. At the same time, emerging markets have ramped up credit growth, and the
level of private credit as a percentage of GDP in several countries (Turkey, Brazil, and the Philippines, to
name a few). While emerging market private sector credit-to-GDP is still low by developed world
standards, at approximately 100.5% of GDP versus 199% for developed countries, its recent acceleration
has been breathtaking, rising from just 65% of GDP in 2008.
Dangerously Above Trend
Emerging Markets Private Credit As % of GDP
Source: BiS, BMI
Now, it looks as though there is likely to be a reversal of fortune, with the private sector in developed
markets reasonably leveraged, if not under-leveraged in some cases, with emerging markets on aggregate
set to see credit-to-GDP growth moderate. In Asia, while China's bubble is perhaps the most concerning,
loans to the household sector have also surged in the ASEAN countries of Singapore, Malaysia, and
Thailand. Even though interest burdens remain low in general thanks to low real interest rates, they are
nonetheless creeping higher. The virtuous cycle - falling interest rates fuelling more borrowing, accelerating
growth and improving the creditworthiness of households and governments - may well begin reversing in
2014. The increase in US interest rates will continue to force an across-the-board reassessment of the
structural macroeconomic picture in many key markets, and test the vulnerabilities of several major banking
sectors.
Regional Outlooks
US And Eurozone: We expect US commercial banking sector client loan growth to accelerate in 2014, as
stronger real GDP growth buoys consumer confidence and businesses increase investment to meet rising
demand. Amidst a backdrop of rising interest rates and a reduction in quantitative easing, we believe banks
will begin to shift their historically large cash assets into lending. In Europe, a new era beckons for
eurozone banking as the European Central Bank is due to take over supervision of national credit
institutions in 2014, which will herald the next stage of economic integration. Though certainly a step in the
right direction towards euro federalism, reforms geared towards banking union will likely mirror the
mistakes made at the birth of the euro. By failing to forge a credible framework for risk sharing across the
bloc, the end result will be a banking union in which federal level supervision has improved but the
economic and political foundations of the euro remain weak and vulnerable to fracturing.
Emerging Asia: One of the major concerns for the global outlook is the prevalence of unsustainable
lending in the Chinese banking sector. Moral hazard within the banking system - namely, the government's
implicit backstop for lending - has been a major factor in allowing the Chinese credit boom to continue to
its current level, and the new government appears in favour of tacking this issue. In doing so, however, this
looks set to create instability in the banking system, which in turn is likely to undermine economic growth
over the coming quarters, if not years. This quarter, our Asia team has focused on South Asian banking
sector opportunities. While South Asian banking systems are similar in many ways, with relatively low
penetration rates, rapid growth, and a heavy focus on lending to the public sector, there are a number of
important differences. We see Sri Lanka's low share of total banking sector assets as positive for long-term
banking sector and economic growth, while Pakistan's excessive public sector credit exposure is a major
risk. Bangladesh's low exposure to government credit, meanwhile, is a significant positive, notwithstanding
the risks posed by ongoing political unrest.
Emerging Europe: While emerging European banks were not immune to the tightening of global credit
conditions in the second half of 2013, they proved more resilient than both LatAm and emerging Asian
banking sectors, a symptom of significant deleveraging since 2008. This places the sector in a good position
to capitalise on improving demand for credit from both commercial and consumer segments in 2014, with
positive implications for profit margins. However, credit growth will remain relatively tepid for most of the
region compared to pre-2008 levels, implying a limit to both profitability and share price performance for
locally-listed regional lenders. There will also be significant sub-regional divergence performance this year
and next, with Central European and Baltic lenders on a stronger footing than their South East European
peers, whereas Russian and Turkish banks face their own idiosyncratic challenges.
Significant Progress
Loan-To-Deposit Ratios For Selected CE and Baltic Economies
Source: Respective Central Banks, BMI
Latin America: Latin America's commercial banking sectors hold enormous growth potential over the long
term, as a larger share of the population moves out of the grey economy and demand for financial services
rises. As a result, despite forecasting more moderate economic growth trajectories in the majority of Latin
American economies over the next two years, we believe that banking sector asset growth will remain
relatively elevated throughout the region. In the near term, we believe that a major challenge confronting
retail banks in Latin America will be shifting monetary policy cycles and rising local interest rates. This
could stifle demand and increase asset quality risks, requiring higher provisions for delinquencies and
squeezing banks' profit margins.
Commercial Banking Will Play An Increasingly Important Role
Latin America - Banking Sector Assets, % of GDP
Note: e/f=BMI estimate/forecast; Source: BMI, Respective central banks/banking supervisory authorities
Sub-Saharan Africa: We are optimistic about the prospects for Sub-Saharan Africa banking sectors
believing that asset growth will be strong in the years ahead, particularly in those countries where sector
penetration remains low. However, asset expansion will not be without its challenges. High interest rates
will continue to exclude many would-be borrowers and banks will continue to face difficulties in assessing
credit-worthiness. The informal nature of many SSA economies and corporate governance weaknesses also
present challenges.
Middle East And North Africa: The outlook for the banking sector in the Middle East is relatively bright
over 2014 and beyond. We expect a slight convergence in growth rates across the region, mostly due to base
effects, but the GCC will remain the outperformer. The Gulf countries, particularly Saudi Arabia and Qatar,
will be buoyed by heavy government spending, especially on large-scale infrastructure projects. Elsewhere,
we are forecasting an uptick in banking sector assets on the back of low base effects and, in the case of
Egypt and Iran, a decrease in political risks.
Demographic Forecast
Demographic Outlook
Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is
the total population of a country a key variable in consumer demand, but an understanding of the
demographic profile is key to understanding issues ranging from future population trends to productivity
growth and government spending requirements.
The accompanying charts detail Australia's population pyramid for 2013, the change in the structure of the
population between 2013 and 2050 and the total population between 1990 and 2050, as well as life
expectancy. The tables show key datapoints from all of these charts, in addition to important metrics
including the dependency ratio and the urban/rural split.
Population Pyramid
2013 (LHS) And 2013 Versus 2050 (RHS)
Source: World Bank, UN, BMI
Population Indicators
Population (mn, LHS) And Life Expectancy (years, RHS)
Source: World Bank, UN, BMI
Table: Australia's Population By Age Group, 1990-2020 ('000)

1990 1995 2000 2005 2010 2013e 2015f 2020f
Total 17,097 18,124 19,259 20,521 22,404 23,343 23,923 25,440
0-4 years 1,262 1,302 1,290 1,299 1,458 1,555 1,604 1,664
5-9 years 1,263 1,298 1,358 1,347 1,373 1,459 1,530 1,677
10-14 years 1,241 1,299 1,347 1,409 1,413 1,423 1,450 1,607
15-19 years 1,398 1,277 1,335 1,409 1,508 1,510 1,504 1,541
20-24 years 1,366 1,427 1,303 1,444 1,651 1,638 1,608 1,605
25-29 years 1,422 1,388 1,448 1,383 1,665 1,739 1,745 1,703
30-34 years 1,398 1,464 1,442 1,517 1,536 1,659 1,746 1,827
35-39 years 1,316 1,429 1,512 1,498 1,622 1,596 1,598 1,809
40-44 years 1,260 1,338 1,458 1,550 1,559 1,625 1,658 1,635
45-49 years 985 1,255 1,348 1,474 1,586 1,573 1,571 1,670
50-54 years 822 974 1,262 1,346 1,476 1,549 1,576 1,563
55-59 years 729 804 969 1,242 1,331 1,401 1,453 1,554
60-64 years 738 712 801 950 1,216 1,272 1,296 1,418
65-69 years 663 691 681 766 911 1,073 1,166 1,247
70-74 years 493 595 636 629 713 783 852 1,096
Australia's Population By Age Group, 1990-2020 ('000) - Continued

1990 1995 2000 2005 2010 2013e 2015f 2020f
75-79 years 376 407 511 551 555 596 636 766
80-84 years 222 278 315 403 430 439 452 524
85-89 years 101 132 171 205 273 291 297 319
90-94 years 34 44 59 80 103 126 141 159
95-99 years 8 10 12 17 26 30 34 49
100+ years 1 1 2 2 3 4 5 7
e/f = BMI estimate/forecast. Source: World Bank, UN, BMI
Table: Australia's Population By Age Group, 1990-2020 (% of total)

1990 1995 2000 2005 2010 2013e 2015f 2020f
0-4 years 7.38 7.19 6.70 6.33 6.51 6.66 6.71 6.54
5-9 years 7.39 7.16 7.05 6.56 6.13 6.25 6.39 6.59
10-14 years 7.26 7.17 6.99 6.86 6.31 6.10 6.06 6.32
15-19 years 8.18 7.05 6.93 6.87 6.73 6.47 6.29 6.06
20-24 years 7.99 7.87 6.76 7.04 7.37 7.02 6.72 6.31
25-29 years 8.31 7.66 7.52 6.74 7.43 7.45 7.30 6.69
30-34 years 8.18 8.08 7.49 7.39 6.85 7.11 7.30 7.18
35-39 years 7.70 7.88 7.85 7.30 7.24 6.84 6.68 7.11
40-44 years 7.37 7.38 7.57 7.55 6.96 6.96 6.93 6.43
45-49 years 5.76 6.93 7.00 7.18 7.08 6.74 6.57 6.57
50-54 years 4.81 5.38 6.55 6.56 6.59 6.64 6.59 6.14
55-59 years 4.26 4.44 5.03 6.05 5.94 6.00 6.07 6.11
60-64 years 4.32 3.93 4.16 4.63 5.43 5.45 5.42 5.57
65-69 years 3.88 3.81 3.54 3.73 4.07 4.60 4.87 4.90
70-74 years 2.88 3.28 3.30 3.06 3.18 3.35 3.56 4.31
75-79 years 2.20 2.25 2.65 2.69 2.48 2.55 2.66 3.01
80-84 years 1.30 1.54 1.64 1.96 1.92 1.88 1.89 2.06
85-89 years 0.59 0.73 0.89 1.00 1.22 1.25 1.24 1.25
90-94 years 0.20 0.24 0.30 0.39 0.46 0.54 0.59 0.62
95-99 years 0.05 0.05 0.06 0.08 0.11 0.13 0.14 0.19
Australia's Population By Age Group, 1990-2020 (% of total) - Continued

1990 1995 2000 2005 2010 2013e 2015f 2020f
100+ years 0.01 0.01 0.01 0.01 0.01 0.02 0.02 0.03
Table: Australia's Key Population Ratios, 1990-2020

1990 1995 2000 2005 2010 2013e 2015f 2020f
Dependent ratio, % of total working age 49.5 50.2 49.6 48.6 47.9 50.0 51.8 55.8
Dependent population, total, '000 5,664 6,056 6,381 6,707 7,257 7,779 8,167 9,115
Active population, % of total 66.9 66.6 66.9 67.3 67.6 66.7 65.9 64.2
Active population, total, '000 11,433 12,068 12,878 13,814 15,147 15,563 15,756 16,324
Youth population, % of total working age 32.9 32.3 31.0 29.3 28.0 28.5 29.1 30.3
Youth population, total, '000 3,767 3,899 3,995 4,054 4,244 4,437 4,585 4,948
Pensionable population, % of total
working age 16.6 17.9 18.5 19.2 19.9 21.5 22.7 25.5
Pensionable population, total, '000 1,897 2,158 2,387 2,653 3,013 3,342 3,583 4,167
Table: Australia's Rural And Urban Population, 1990-2020

1990 1995 2000 2005 2010 2013e 2015f 2020f
Urban population, % of total 85.4 86.1 87.2 88.2 89.0 89.5 89.8 90.4
Rural population, % of total 14.6 13.9 12.8 11.8 11.0 10.5 10.2 9.6
Urban population, total, '000 14,601 15,606 16,787 18,096 19,950 20,888 21,477 22,992
Rural population, total, '000 2,496 2,518 2,472 2,425 2,454 2,455 2,446 2,447
Methodology
Industry Forecast Methodology
BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case being determined, as per standard practice, by the prevailing features of the industry data being
examined.
Common to our analysis of every industry, is the use of vector autoregressions. Vector autoregressions
allow us to forecast a variable using more than the variable's own history as explanatory information. For
example, when forecasting oil prices, we can include information about oil consumption, supply and
capacity.
When forecasting for some of our industry sub-component variables, however, using a variable's own
history is often the most desirable method of analysis. Such single-variable analysis is called univariate
modelling. We use the most common and versatile form of univariate models: the autoregressive moving
average model (ARMA).
In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality
is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for
analysis and forecasting.
BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use of
objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple non-
linear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for
example poor weather conditions impeding agricultural output, dummy variables are used to determine the
level of impact.
Effective forecasting depends on appropriately selected regression models. BMI selects the best model
according to various different criteria and tests, including but not exclusive to:
R
2
tests explanatory power; adjusted R
2
takes degree of freedom into account;
Testing the directional movement and magnitude of coefficients;
Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); and
All results are assessed to alleviate issues related to auto-correlation and multi-collinearity.
BMI uses the selected best model to perform forecasting.
It must be remembered that human intervention plays a necessary and desirable role in all of BMI's industry
forecasting. Experience, expertise and knowledge of industry data and trends ensure that analysts spot
structural breaks, anomalous data, turning points and seasonal features where a purely mechanical
forecasting process would not.
Sector Specific Methodology
BMI's Commercial Banking Report series is closely integrated with our analysis of country risk,
macroeconomic trends and financial markets. As such, the reports draw heavily on our extensive economic
data set, which includes up to 550 indicators per country, as well as our in depth view of each local market.
We collate our commercial banking databank from official sources (including central banks and regulators)
wherever possible, and only fall back on secondary sources where all attempts to secure primary data have
failed. Company data is sourced, in the first instance, from company reports, with central bank, regulator or
trade association data only used as a backup.
The reports focus on total assets, client loans and client deposits.
Total assets are analogous to the combined balance sheet assets of all commercial banks in a particular
country. They do not incorporate the balance sheet of the central bank of the country in question.
Client loans are loans to non-bank clients. They include loans to public sector and state-owned
enterprises. However, they generally do not include loans to governments, government (or non-
government) bonds held or loans to central banks.
Client deposits are deposits from the non-bank public. They generally include deposits from public sector
and state-owned enterprises. However, they only include government deposits if these are significant.
We take into account capital items and bond portfolios. The former include shareholders funds, and
subordinated debt that may be counted as capital. The latter includes government and non-government
bonds.
In quantifying the collective balance sheets of a particular country, we assume that three equations hold
true:
Total assets = total liabilities and capital.
Total assets = client loans + bond portfolio + other assets.
Total liabilities and capital = capital items + client deposits + other liabilities.
In terms of the equations, other assets and other liabilities are balancing items that ensure equations two and
three can be reconciled with equation one. In practice, other assets and other liabilities are analogous to
inter-bank transactions. In some cases, such transactions are generally with foreign banks.
In most countries for which we have compiled figures, building societies/thrifts are an insignificant part of
the banking landscape, and we do not include them in our figures. The US is the main exception to this.
In some cases, total assets and client loans include significant amounts that are owned or that have been lent
to customers in another country. In some cases, client deposits include significant amounts that have been
deposited by residents of another country. Such cross-border business is particularly important in major
financial centres such as Singapore and Hong Kong, the richer OECD countries and certain countries in
Central and Eastern Europe.
Risk/Reward Ratings Methodology
BMI's Risk/Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease of
doing business and the industry-specific opportunities and limitations for potential investors in a given
market.
The RRR system divides into two distinct areas:
Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state
characteristics that may inhibit its development. This is further broken down into two sub categories:
Industry Rewards (this is an industry specific category taking into account current industry size and
growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall
score for potential returns for investors).
Country Rewards (this is a country specific category, and the score factors in favourable political and
economic conditions for the industry).
Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic
profile that call into question the likelihood of anticipated returns being realised over the assessed time
period. This is further broken down into two sub categories:
Industry Risks (this is an industry specific category whose score covers potential operational risks to
investors, regulatory issues inhibiting the industry, and the relative maturity of a market).
Industry Risks (this is a country specific category in which political and economic instability,
unfavourable legislation and a poor overall business environment are evaluated to provide an overall
score).
We take a weighted average, combining market and country risks, or market and country rewards. These
two results in turn provide an overall Risk/Reward Rating, which is used to create our regional ranking
system for the risks and rewards of involvement in a specific industry in a particular country.
For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall
risk/reward rating a weighted average of the total score. Importantly, as most of the countries and territories
evaluated are considered by BMI to be 'emerging markets', our rating is revised on a quarterly basis. This
ensures that the rating draws on the latest information and data across our broad range of sources, and the
expertise of our analysts.
BMI's approach in assessing the risk/reward balance for infrastructure industry investors globally is
fourfold:
First, we identify factors (in terms of current industry/country trends and forecast industry/country
growth) that represent opportunities to would-be investors.
Second, we identify country and industry-specific traits that pose or could pose operational risks to
would-be investors.
Third, we attempt, where possible, to identify objective indicators that may serve as proxies for issues/
trends to avoid subjectivity.
Finally, we use BMI's proprietary Country Risk Ratings (CRR) in a nuanced manner to ensure that only
the aspects most relevant to the infrastructure industry are incorporated. Overall, the system offers an
industry-leading, comparative insight into the opportunities/risks for companies across the globe.
Sector Specific Methodology
In constructing these ratings, the following indicators have been used. Almost all indicators are objectively
based.
Table: Commercial Banking Risk/Reward Rating Indicators
Indicator Rationale
Banking Market Rewards
Estimated total assets, 2013 Indication of overall sector attractiveness. Large markets are considered more
attractive than small ones.
Estimated growth in total assets,
2013-2017
Indication of growth potential. The greater the likely absolute growth in total assets,
the higher the score.
Estimated growth in client loans,
2013-2017
Indication of the scope for expansion in profits through intermediation.
Country Rewards
GDP per capita A proxy for wealth. High-income states receive better scores than low-income
states.
Active population Those aged 16-64 in each state, as a % of total population. A high proportion
suggests that the market is comparatively more attractive.
Corporate tax A measure of the general fiscal drag on profits.
Commercial Banking Risk/Reward Rating Indicators - Continued
Indicator Rationale
GDP volatility Standard deviation of growth over seven-year economic cycle. A proxy for
economic stability.
Risks
Banking Market risks
Regulatory framework and industry
development
Subjective evaluation of de facto/de jure regulations on overall development of the
banking sector.
Regulatory framework and
competitive environment
Subjective evaluation of the impact of the regulatory environment on the
competitive landscape.
Country Risks
Short-term financial risk Rating from CRR, evaluating currency volatility.
Policy continuity Rating from CRR, evaluating the risk of a sharp change in the broad direction of
government policy.
Legal framework Rating from CRR, to denote strength of legal institutions in each state. Security of
investment can be a key risk in some emerging markets.
Bureaucracy Rating from CRR to denote ease of conducting business in the state.
Source: BMI
Weighting
Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal
weight. Consequently, the following weights have been adopted:
Table: Weighting Of Indicators
Component Weighting, %

Rewards 70, of which
Industry Rewards 60
Country Rewards 40
Risks 30, of which
Industry Risks 40
Country Risks 60
Source: BMI
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Q2 2014

Increasing geographic reach in Asia Pacific markets.

High exposure to bubbly domestic residential real estate market.

Expansion into growing markets of Asia.

Dependence on external funding makes Australia vulnerable to a liquidity crisis.

The export basket is highly concentrated in commodities, and consequently exposes

Upgrade and expansion of urban infrastructure will be needed to sustain population

Total assets increased over the twelve-month period to June 2013.

Operating in an environment that favours the 'big four' Australian banks.

Boasts an improving Tier 1 capital ratio.

Potential for increased regulation in 2014.

Status: Public Listed Company

Access to lower-cost funding through various government stimulus schemes.

Offers a wide range of financial products and services.

High exposure to residential real estate markets.

Expansion of distribution networks for other financial services.

Synergies from merger with AXA Asia Pacific Holdings.

Total assets rose to AUD118.75bn in 2012.

Potential for increased regulation of banking sector.

Potential for a housing market correction in some cities.

Status: Subsidiary of AMP Limited, which is a Public Listed Company.

Offers a wide range of products and services.

Looking to increase its footprint in SME lending.

Expenses kept under control in FY13.

Posted a 14% y-o-y increase in net profit for FY13.

Potential for increased regulation in 2014.

Status: Public Listed Company

Cash earnings increased by 9.2% in FY13.

Potential for growth in Asia Pacific region.

Potential for greater regulation.

Public Listed Company

High exposure to real estate.

Expansion in the rapidly growing Asian market, building on existing operations in

Set to open new branches in Indonesia.

Slight increase in net profits during the 2013 fiscal year.

Deteriorating credit quality and slower loan growth.

Status: Public Listed Company

Expanding footprint in SME lending.

Status: Public Listed Company

Testing the directional movement and magnitude of coefficients;

Total assets = total liabilities and capital.

Total assets = client loans + bond portfolio + other assets.

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