The History and Current State of Banking Industry in Australia
Discuss About The Understanding Consumer Adoption Of Internet?
Banking is a system which is mainly concerned about the deposit taking and lending of such deposited funds to the required parties. But the scope of banking function has a wide scope and it covers several activities. A banking system is one of most significant part of any economy as it promotes the effective flow of funds for the development of country’s economy. The financial system i.e. the banking sector of Australia has a record of successful existence due to the robustness of its functions. It is considered the central part of Australian economy due to the soundness, safety and efficiency maintained by it in performing its overall functions. The concept of banking in Australia was recognised long years back after which the Australian economy has faced various ups and downs in the areas of its financial system but it has always managed to come up such fluctuations successfully.
In year 1817, the first Australian bank was established in Sydney with the name of Bank of South Wales. The Australian banking sector had to face a financial crisis in 1893 due to the speculative boom in the property market of Australia in 1880s. The crisis occurred in the time when there was very less governmental or regulatory control on the banks of Australia and hence it caused failures of various commercial banks (Hickson & Turner, 2002). Until 1910, private bank notes and the treasury notes were circulated in Australian economy. However, in 1910 Australian pound was issued as the Australian’s legal tender. Then in year 1911, the commonwealth bank was established by the federal government of Australia. Along with the other countries, Australia was also the victim of great depression that occurred in 1930 and caused a series of bank failures in the country. In response to the 1930’s depression, the Australian banking was made tightly regulated. It was almost impossible for the banks from foreign countries to set up their branches in Australia and due to this Australian economy has lesser banks in comparison to other countries like Hong Kong and US (Merrett, 2002). The Australian banks were bifurcated between savings and trading banks. Majority of savings banks were state government owned and their activities were confined to provision of mortgage loans. Trading banks were typically merchant banks that did not offer services to general public.
Challenges Faced by Banking Industry in Post-Global Financial Crisis Period
The efficient and effective system of banking is an integral part of economy of the country. The banks in Australia have supported the nation in all the good and bad times by positively contributing to the economic growth and national prosperity. Australian banks have served the employment to the Australian citizens to a great extent. It has provided around 150000 jobs in the Australian nation
(ABA’s Economic report, 2015). The country’s banks provide loans of around 1 million to the small businesses for their growth and development. As the Australian banks have sound capital blocking and also sophisticated safeguards against frauds and other crimes, they support the household savings of countries citizens. These banks contribute significantly to the revenue of the government which in turn helps in the overall development of the country’s economy. In year 2014 banking sector had made the tax payment of around $13.7 billion to the government. Banking industry is the largest service industry in respect of economic contribution and is contributing almost equal to 9.3% to the GDP of country as the finance industry has contributed $138.6 billion in 2015 to the economy of Australia (Kirkwood & Nahm, 2006). The overall banking system of banking offers a wide gamut of financial services and products to all customer segments such as personal lending, general insurance, financial advice and credit card facilities etc. so that the customers can arrange deploy their the funds in the best possible manner.
This shows the improvement in the bank’s productivity in areas of labour and capital utilisation and hence it can be said that banks are contributing positively to the growth of economy since last many years.
The above figure shows that the retails banks are paying considerable interest to the account holders on term and savings deposits etc. which becomes the part of their income from other sources.
Though the banking system of Australia is quite strong and safe, it has to face some challenges in the post period of global financial crisis (Sathye, 2001). The banks have to face longer periods of lower rates of interests. The profitability of the banks is deeply pressurised due to the lower interest rates and weakens the operating environment. These lower interest rates also exert pressure on rise in housing prices (Australian Government, 2015). The sensitivity of bank towards housing market shocks has been increased since 2008 as longer period of lower interest rates can cause more credit flow to housing market. After the global financial crisis, there have been imposed heavy regulatory reforms on the banking sector which creates pressure on the banks and thereby causes them to underperform. Due to the technological advancements, the customers of the banks are abandoning the use of traditional banking services and relying on the online services and banks fails to offer them the desired services (Joseph, McClure & Joseph, 1999). Also increasing introduction of Fin-tech companies which are providing financial services with the use of software is causing heavy competitive pressure on the banking sector. Therefore, the banks are pressurised to adopt the environment of digital banking (Lichtenstein & Williamson, 2006). Moreover, for every banking institution operating in the market, data held by it is of significant importance whereas in the case of digital banking, the financial data maintained by them is prone to various risk exposures such as data loss, data manipulation etc.
Services Offered by Australian Banks
The competitive pressures must be enhanced in the banking industry to increase the efficiency in the market. But such competition must be kept balanced with maintaining stability. The pressure from the Governmental bodies in the form of various reforms must be released. To enhance the accountability and increasing the independence of banking sectors some areas are to be improved. The regulatory perimeters need to be changed in Australia to cope up with the changes in the economic environment of economic system. The superannuation assets have been expanded rapidly
The prime acts that regulates the banking institutions such as banks incorporated in Australia, representative offices set up in Australia and branches of various foreign banks, specialised credit institutions or unions and the building societies of Australia are regulated by following laws:
Banking Act 1959: All the banking companies incorporated in Australia, are controlled and regulated by the banking act.
Reserve bank act, 1959: The reserve bank of Australia is regulated by the reserve bank act. The said act gives specific powers and obligations to the reserve bank (Bade & Parkin, 1988).
Corporations act, 2001: This act is a principle legislation that sets out regulations and laws that applies on Australian business entities at both federal as well as interstate level. It mainly emphasises on the corporate bodies but also entails some laws applicable on partnership firms.
Financial Sector Act, 2001 (Collection of data act): This act was commenced in 2001 and it vested the responsibility of registration of Australian financial corporations to the Australian Prudential Regulatory body. However, it does not give powers to APRA to oversee the activities of registered financial incorporations. The act is meant to primarily facilitate the statistical data collection.
Financial Sector act, 2001 (Shareholdings): This act is applicable on the financial sector companies which are subject to the limit of 15% shareholding. It majorly deals with the acquisition of shares by persons in the company.
The banking sector of Australia provides a wide range of services:
Financing and investing activities: The banks in Australia provide finances to the business entities to expand and develop their businesses. These banks also facilitate deposits of the surplus funds or savings of the business entities or individuals so that returns can be generated on such deposits (Reserve Bank of Australia, 2018).
Transactional services: Banks also performs various collection services for their clients under which the banking organisations collects payments from the debtors of their clients directly to their banks accounts and intimates them on time to time basis about the collection process. They also manages the payment mechanism of their clients through the modes of cheques, direct transfers or through electronic fund transfer schemes.
Risk management services: Australian banks provides solutions to safeguard the Australian business entities against the currency fluctuation and also the movements in interest and commodity rates.
Superannuation and insurance: The Australian banking sector provides superannuation services and it also provides insurance services to the clients.
Advisory services: The banks provide advices on financial investments and protection from various financial risks and they also provide advices to corporate on potential mergers and acquisitions and capital markets etc. (Australia and New Zealand Banking Group Limited 2015).
The banks also issue credit or debit cards to their customers and then performs processing of electronic debit and credit card transaction their behalf.
These banks also facilitate the maintenance of foreign exchange reserves so that the customers can buy the foreign exchange to enter into foreign transactions.
The above figure shows that banks are providing maximum proportion of financial services to the customers than other bodies such as unions and building societies (CUBS) or non-authorised deposit-taking institutions (non-ADIs)
Inflation is the economic situation in which the prices of goods and services increase over a period of time. The price instability can lead to severe instability in the overall financial system of the country. The financial shocks due to inflation can adversely affect the economy of the country. A weak financial system can make it difficult for the economy to achieve growth and pursue its objective of price stability. The financial system especially the banking sector has undergone significant changes to influence the system’s efficiency and stability (Debelle, 1996). The financial system’s stability is well- established responsibility of Reserve Bank. In fulfilling the overall responsibility, Reserve bank has a vital role to play in reducing the risk of financial disruptions and in responding to the situations of financial disturbance due to the extreme inflationary forces. The reserve banks of Australia continuously formulate and monitor various monetary policies to maintain the inflation in the country. The RBA communicates its views with the relevant agencies. A forum called Council of Financial Regulators has been formed to maintain financial stability in the system. The CFR takes together the reserve bank, APRA and ASIC to contribute to the effectiveness of stability of financial system by stabilising the inflation in the country (Reserve Bank of Australia, 2018).
Therefore, it can be concluded that banking sector plays significant role in the economic development of the Australia. The financial system is also found to be quite stable and sound to nurture the growth of the economy. Its role in the economic development of the country is significant. However, even after the efficient functioning and performance, the banking sector of the country has to face various challenges due to the digitisation and modernisation in the economy. These challenges need to be overcome to strengthen the economy of Australia. The Australian must make efforts to reduce the challenges faced by the finance sector by lessening the overall burden of fiscal reforms on the banking sector. It must make the banking system more independent and transparent to generate the trust of Australian community in the banking sector.
ABA’s Economic report, 2015. Australia's banks: an integral part of the economy and the community. Retrieved from < https://www.bankers.asn.au/images/uploads/ArticleDocuments/134/ABA%20economic_report_final_Oct_2015.pdf> Accessed on 24-1-2018.
Australia and New Zealand Banking Group Limited (ANZ) 2015. Products and services. Retrieved from: < https://www.anz.com/corporate/products-services/> Accessed on 24-1-2018.
Australian Government, 2015. The Australian banking system: Challenges in the post global financial crisis environment. Retrieved from : < https://treasury.gov.au/speech/the-australian-banking-system-challenges-in-the-post-global-financial-crisis-environment/> Accessed on 24-01-2018.
Bade, R. and Parkin, M., 1988. Central bank laws and monetary policy. London, ON: Department of Economics, University of Western Ontario.
Debelle, G., 1996. The ends of three small inflations: Australia, New Zealand and Canada. Canadian Public Policy/Analyse de politiques, pp.56-78.
Hickson, C.R. and Turner, J.D., 2002. Free banking gone awry: the Australian banking crisis of 1893. Financial History Review, 9(2), pp.147-167.Joseph, M., McClure, C. and Joseph, B., 1999.
Merrett, D.T., 2002. The internationalization of Australian banks. Journal of International Financial Markets, Institutions and Money, 12(4), pp.377-397.
Service quality in the banking sector: the impact of technology on service delivery. International journal of bank marketing, 17(4), pp.182-193.
Kirkwood, J. and Nahm, D., 2006. Australian banking efficiency and its relation to stock returns. Economic record, 82(258), pp.253-267.
Lichtenstein, S. and Williamson, K., 2006. Understanding consumer adoption of internet banking: an interpretive study in the Australian banking context. Journal of Electronic Commerce Research, 7(2), p.50.
Reserve Bank of Australia, 2018. Banking Services. < https://www.rba.gov.au/fin-services/banking.html> Accessed on 24-1-2018.
Reserve Bank of Australia, 2018. Role of the Reserve Bank in Maintaining Financial Stability. Retrieved from < https://www.rba.gov.au/fin-stability/reg-framework/role-of-the-reserve-bank-in-maintaining-financial-stability.html> Accessed on 24-01-2018.
Sathye, M., 2001. X-efficiency in Australian banking: An empirical investigation. Journal of Banking & Finance, 25(3), pp.613-630.
Sathye, M., 2001. X-efficiency in Australian banking: An empirical investigation. Journal of Banking & Finance, 25(3), pp.613-630.
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