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Bank shares at record highs as dominance lifts

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Published on: Friday, October 02, 2009

The market capitalisation of the banking sector is back at record highs as local banks extend their dominance across the financial sector. Market cap of the banking sector has more than doubled over the last nine months.

Australian banks continued to regain market share from foreign lenders in the latest month.

The ten major Australian banks accounted for 93.5 per cent of all bank home loans in August, while taking 86 per cent of all deposits and 88.7 per cent of all loans and advances.

What do the figures show and what does it all mean?

The sharemarket capitalisation of the banking sector is back at record highs. At the end of September the capitalisation of the banking sector stood at $287 billion, a smidgen below the all-time high of $291 billion set on November 1 2007. Market cap did hit $290 billion on September 29 before easing modestly on profit-taking yesterday.

The turnaround in the fortunes of the banking sector has been nothing short of stunning. Since the lows recorded on January 23, the market capitalisation of the banking sector has more than doubled, lifting 112 per cent.

The gain in market capitalisation reflects new equity issuance as well as higher prices. The bank share price index has soared by 91 per cent since late January while the amount of shares on issue has lifted by 21 per cent.

The rebound of the banking sector shouldn’t come as a surprise. Australian banks had none of the problems of their US and European counterparts but share prices still fell in the global sell-down. But with the all-clear sounded on the global financial crisis, investors quickly realised that Australian banks shouldn’t have been sold off to the extent that they were.

Not only did Australian banks survive the GFC but they have prospered. Few companies or financial institutions would see the global financial crisis as a “positive”. However it is clear that local banks as a group have benefited from the ‘flight to quality’ over the past year making market share gains.

The challenge for banks will be to retain dominant positions in loan and deposit markets as the ‘safe haven’ premium erodes over coming months.

We have assessed trends in loans and deposits for ten Australian banks as a group. The ten banks are ANZ, CBA, NAB, Westpac, BankWest, Bank of Queensland, Bendigo & Adelaide, Macquarie, Suncorp-Metway and St George.

In August the ten Australian banks’ share of all loans and advances hit a 32-month high of 88.7 per cent, up from lows of 87.0 per cent set in May 2008. Australian banks lost market share to foreign banks over 2006 and 2007 but they have basically made up all lost ground over the past eight months.

Australian bank’s share of bank outstanding home loans was steady at 93.5 per cent in August, and up from recent lows of 93.0 per cent recorded in September 2008. Australian banks have consistently held around 93 per cent of all bank home loans in recent years.

While Australian banks have held a steady share of all bank home loans outstanding, they have markedly lifted market share in the total home loan market. Australian banks held 77.1 per cent of total home loans outstanding in August, well up from lows of 65.3 per cent in September 2007.

Australian banks’ share of household deposits held at 92.8 per cent in August, well up from lows of 91.1 per cent set in late 2007 and 90.2 per cent set in March 2006. Share of total deposits eased from 86.4 per cent to 86.0 per cent in August but this is still well up from lows of 80.1 per cent set in October 2007.

Implications for interest rates and investors

Over the past year Australian banks have recouped market share losses and have extended their dominance over deposit and lending flows.

According to the latest survey by Westpac and the Melbourne Institute consumers believe the wisest place to put savings is with banks. However the challenge for banks will be to hold on to deposits in coming months at a time when interest rates are rising and solid gains are being recorded on the sharemarket and across the country’s housing markets.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.


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