This report provides an overview of the most significant banking developments of 2011 and identifies 10 of the most important trends that will shape the retail banking market in 2012, to which providers will need to respond and adapt.
Description
INTRODUCTION
The Australian retail banking market is undergoing difficult times with a number of adverse conditions developing both locally and abroad. Higher funding costs, lower credit growth, new regulations and evolving consumer preferences will challenge even the most stable bank. This report examines the key trends affecting the market over the next year and the steps banks can take in response.
FEATURES AND BENEFITS
Identifies the most important trends that will affect retail banking in 2012.
Assesses the impact of macroeconomic, consumer, strategic, and technological developments on the retail banking industry.
Details what actions competitors will undertake in 2012 to protect and improve their market position.
HIGHLIGHTS
One key feature of the Australian retail banking market in recent years has been the erosion of net interest margins on their lending business. While the net interest margins of the banks had been on a long-term decline before the financial crisis, the environment since the crisis and its immediate aftermath has been decidedly negative.
The outlook for 2012 and indeed funding conditions in the Australian market are greatly influenced by what is happening in Europe, and an outright global recession remains a very real possibility. Australian banks are exposed to the continuing crisis facing Europe and its banks.
In Australia the overall lending environment - both commercial and personal - was up from 2010. While 2011 was an improvement on 2010, which represented a recent low in credit flowing into the Australian market, average monthly lending remained below the peak the market recorded in June 2007.
YOUR KEY QUESTIONS ANSWERED
What shape will the Australian retail banking market take over the next 12 months?
What impact will macroeconomic, regulatory, and technological developments have on the retail banking sector?
How will providers respond to the changing banking environment in 2012?
Table of Contents
TOC
OVERVIEW
Catalyst
Summary
EXECUTIVE SUMMARY
Trend one: a flat to negative Australian property market will see many players struggle
Falling property prices will have a slew of direct and indirect effects on the banking marketplace
Trend two: the Australian deleveraging process will lead to lower credit growth in the near term
The global crisis jarred confidence and lowered the appetite for credit in Australia
Banks will have to develop strategies for attracting switching customers rather than relying upon new borrowers
Trend three: regulatory changes will impose costs and drive consolidation
Over the next year the regulatory burden will be a key driver behind consolidation in the advisor space
In five years' time the financial advice marketplace will be dominated by big and integrated groups
Trend four: the spread of the online channel will come at the margins of the market
Online channel usage and attitudes have become polarized and stabilized
Consumers will begin to see mortgage refinancing as an activity simple enough for the online channel
Trend five: ATMs will evolve to offer more than just cash distribution
The use of ATMs has reached a stagnation point, which signifies a step toward the future of cashless payments
New generation ATMs will begin adding bank branch activities to the self-service kiosks
Trend six: the new paradigm of banking will have clear basic products with low fees
New regulations in the wake of the global crisis have limited the risk banks are allowed to take and heightened the importance of fees
Adopting low fee platforms and cost-cutting will become more prevalent
Trend seven: banks will cope with the low fee transactional banking by better targeted value-add products and services
There are now no fee mortgages, credit cards, and accounts, which have reduced important earners
Banks will compete with products designed for specific social groups and consumer segments
MARKET OVERVIEW
The eurozone crisis has made overseas borrowing costlier for banks, squeezing lending margins
In 2011, Australian banks have had to contend with higher funding costs, making balance sheet management key
Eurozone instability is the main threat to banks, and froze wholesale lending markets in 2011
Global uncertainty has negatively impacted Australia's lending markets
Average monthly lending commitments to the Australian economy were only 3.1% higher in 2011
Global political indecision and reactive markets have depressed Aussie investors and borrowers
Volatility at the global level has had a direct impact on local consumer confidence
The two speed economy has pressured consumers and businesses, creating a poor trading environment
The split between the industrial East and the resource-based West and North has resulted in two Australias
Worse global prospects means lower resource demand, dampening even the bright spots in the economy
The record high dollar lowers demand for Australian manufacturing exports
Australia has a relatively strong position globally due to its lower public debt
Australia has low public debt compared to most Western countries
The lower public debt ratio of Australia makes for a more resilient economy
The Australian market has entered a period of weak credit demand from consumers
Australian consumers have amassed a considerable amount of private debt in the form of mortgages
Australian households have become twice as indebted over the last 20 years
The Australian property market has recently come off the boil
Australian property prices have supported rising consumer demand for debt
The Australian property market will struggle in 2012 and prices may decline by up to 10%
Property prices will remain flat or fall in the medium term
TRENDS IN AUSTRALIAN RETAIL BANKING
Trend one: a flat to negative Australian property market will see many players struggle
Falling property prices will have a slew of direct and indirect effects on the banking marketplace
Falling property prices will create challenges for providers, but there will always be opportunities for savvy businesses to prosper
Trend two: the Australian deleveraging process will lead to lower credit growth in the near term
The global crisis jarred confidence and lowered the appetite for credit in Australia
The decline in the first time home buyer income to mortgage ratio highlights the shift in consumer attitudes to debt
Credit growth for all types of consumer finance will remain sluggish in 2012 creating a difficult trading environment
Trend three: regulatory changes will impose costs and drive consolidation
Over the next year the regulatory burden will be a key driver behind consolidation in the advisor space
The FoFA reforms are coming into effect over the next year
The US government has imposed reporting obligations and costs on Australian financial institutions
In five years' time the financial advice marketplace will be dominated by big and integrated groups
Trend four: the spread of the online channel will come at the margins of the market
Online channel usage and attitudes have become polarized and stabilized
Consumers will begin to see refinancing as an activity simple enough for the online channel
Trend five: ATMs will evolve to offer more than just cash distribution
The use of ATMs has reached a stagnation point, which signifies a step toward the future of cashless payments
New generation ATMs will begin adding bank branch activities to the self-service kiosks
The move toward a cashless society lowers the usefulness of the traditional ATM role of cash distribution
Trend six: the new paradigm of banking will have clear basic products with low fees
New regulations in the wake of the global crisis have limited the risk banks are allowed to take and heightened the importance of fees
A lower risk/return environment makes it harder to charge high performance fees and commissions
The move toward transparency will benefit providers and products that can demonstrate added value
Adopting low fee platforms and cost-cutting will become more prevalent
Trend seven: banks will cope with low fee transactional banking by offering better targeted value-add products and services
There are now no fee mortgages, credit cards, and accounts, which have reduced important earners
Migrating consumers to premium accounts and product bundles will become more of a priority as fee income from individuals continues to slide
Banks will compete with products designed for specific social groups and consumer segments
APPENDIX
Data tables
Note on exchange rates used in the report
Data sources
Methodology
Further reading
Ask the analyst
Disclaimer
TABLES
Table: Top 20 mortgage lenders in 2011 by book size and percentage of overall lending
Table: Westpac Premium Financial Services' mass affluent offering
Table: Australian trade balance, seasonally adjusted and trend (A$m), 2007-11
Table: Outstanding residential mortgages on the books of authorized deposit-taking institutions (A$bn), March 2002 to October 2006
Table: Outstanding residential mortgages on the books of authorized deposit-taking institutions (A$bn), November 2006 to June 2011
Table: Average first home buyer mortgage and weekly wage
Table: Australian gross state product: chain volume measures (percentage changes), 2005-11
Table: Average annual wages per average first home mortgage
Table: Household debt to asset ratio, March 1990 to September 2011
Table: Housing debt as a proportion of total household debt, March 1990 to September 2011
Table: Total debt to disposable income ratio, March 1990 to September 2011
Table: Monthly mortgage lending commitments to owner-occupiers excluding refinancing (A$bn), January 2004 to December 2011
Table: Bank household fees by product over time (A$m), 1997-2010
FIGURES
Figure: Banks are no longer able to rely upon substantial margins from their lending business
Figure: Australian banks have shifted their liabilities to deposits, but retain substantial exposure to the debt markets to fund their lending
Figure: Monthly lending commitments were up in 2011, albeit still well below their 2007 peak
Figure: Major macroeconomic events in the eurozone in 2011
Figure: The S&P 500 VIX was elevated for much of the second half of 2012
Figure: The mining state of Western Australia has consistently outgrown the rest of the economy
Figure: Australia has a trade surplus supporting the currency since 2010
Figure: Resources play an important role in Australian exports
Figure: Australia's top three trading partners are China, Japan, and the US
Figure: The Australian dollar has strengthened against the US dollar since 2009
Figure: Australia has a relatively low level of public debt
Figure: Mortgage debt has grown substantially in Australia
Figure: Australian households have become gradually more leveraged over the last two decades
Figure: Housing debt has increased as a proportion of total household debt
Figure: Total household debt to total disposable income has recently started falling
Figure: Average first mortgages have increased faster than average wages
Figure: The Australian property market has been sheltered in the past from global negative economic forces
Figure: Home loans make up the bulk of a retail bank's lending, but some are more exposed than others
Figure: The mortgage to wage ratio has trended down in recent years, and this is expected to continue in the future
Figure: Bank lending to households has slowed considerably
Figure: Owner-occupier mortgage lending commitments excluding refinancing have been flat since 2008
Figure: GE Money has targeted the Australian refinance market
Figure: Banks have struggled to convince the public to use the online channel for all products
Figure: New payment tools will move consumers away from using ATMs
Figure: Interactive ATMs allow customers to speak with a live teller via video link
Figure: The Commonwealth Bank Kaching mobile application allows easy payments via smartphone
Figure: PIMCO has been able to offer investors a low cost way to access its managers' talent
Figure: UBank invites its customers to compare its proposition to its competition
Figure: Bankwest offers a no annual fee platinum credit card
Figure: Bank household fees have recently dropped, eating into profits
Figure: The ANZ Pacific Money Transfer Card provides a low fee option for small remittances to the Pacific Islands
2012: Trends to Watch in Australian Retail Banking published by Datamonitor in April 2, 2012. This report consists of Pages: 69 and the price starts from US $ 3450.
