Essays on Structure of Australian Financial Institutions, Market Share and Assets Coursework

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The paper "Structure of Australian Financial Institutions, Market Share and Assets" is a good example of finance and accounting coursework. The structure of the institutions has remained relatively unchanged compared to institutions in other First World countries. However, the industry has seen much development, especially regarding the kind of financial institutions. Today, there are many financial institutions in the country, with the major ones including authorized deposit-taking institutions (ADIs), managed funds, registered financial corporations, and insurance institutions. ADIs, which consist of banks, building societies, and credit unions, remains the leading financial institutions in the country in terms of assets and market share. Market Share and Assets According to Donovan and Gorajek (2011), ADIs enjoyed a market share of about 60 percent of the Australian financial industry by the end of 2010.

Over the same period, their assets amounted to over $2.5 trillion, which is because of improved rates of loans to individual borrowers. Australian banks take up the largest share – more than 95 percent – of the ADIs’ assets. The total domestic assets of the major players in the banking sector - National Australia Bank, Commonwealth Bank of Australia, Westpac Banking Corporation, and ANZ Banking Group - amount to about $1.9 trillion, which represent about 75 percent of assets owned by ADIs.

In addition, local assets of the remaining smaller banks fall between $40 million and $70 billion, with locally owned and internationally owned ones accounting for 9 percent and 13 percent of ADIs’ portfolio respectively. The market share and asset base of banks have been increasing over the last five years, while that of building societies and credit unions have been slumping.

By December 2010, both institutions controlled an insignificant share of the Australian financial market, with their total assets representing less than 5 percent of the portfolio owned by ADIs. The majority have asset bases of not more than $1 billion, a situation that has forced most of them to consolidate their assets to keep up with the competitive pressure in the industry. The following table provides a comprehensive overview of total assets owned by the three forms of ADIs, as well as their corresponding market share. Table 1: Assets and market share of Australian ADIs Like the credit unions, the prominence of RFCs in the Australian financial market has been declining over the years.

Today, Australian RFCs comprises of about 110 finance firms and more than 20 money market firms, which act solely as intermediaries between credit providers and seekers (RBA 2006). They control a market share of not more than 4 percent of the financial industry, with most of them having an asset base of about $100 million and a few, assets worth $20 billion. Compared to the banking sector, managed funds sector (composed of public unit trusts, life insurance corporations, and superannuation funds, among other forms of trusts) in Australia enjoys considerable growth from year to year.

As at December 2010, they had a market share of about 30 percent, controlling assets worth $1.4 trillion. In this category, the superannuation funds seem the most prominent, representing more than 60 percent of the total funds. Other than the life insurance corporations, insurance firms in the Australian financial industry represent only an insignificant share of 3 percent, which is equivalent to about $133 billion assets.

The other major part of the Australian financial institutions, securitization vehicles (composed mainly of residential mortgage-backed securities (RMBS)), has a market share of less than five percent. The recent financial crisis, which had significant impacts of the residential markets across the globe, bears much of the blame for the low market share of the vehicles. The following graph demonstrates the structure, in terms of market share, of the aforementioned institutions over the last two decades.

References

Australian Prudential Regulation Authority (APRA) 2009, ‘APRA’s prudential approach to ADI liquidity risk,’ Discussion Paper, 11 September.

Debelle, G 2009, Some effects of the global financial crisis on Australian financial markets, RBA, 19 August 2011,

Donovan, B, & Gorajek, A 2011, ‘Developments in the structure of the Australian financial system,’ RBA Bulletin, June, pp. 29-40.

Ellis, L 2009, The global financial crisis: causes, consequences, and countermeasures, RBA, viewed 19 August 2011,

Gorajek, A & Turner, G 2010, ‘Australian bank capital and the regulatory framework’, RBA Bulletin, September, pp. 43-50.

Reserve bank of Australia (RBA) 2006, ‘The structure of the Australian financial system,’ Financial Stability Review, March, pp. 49-51.

RBA 2011, About financial stability, RBA, viewed 19 August 2011,

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