The GFC threw a lot of banks around the world into turmoil, but in Australia the banks escaped relatively unscathed. That’s due to Australia’s comparative strength at the time. And just like then, the banking sector makes up a huge portion of the Australian market.
Despite the fact that the banks make up a large percentage of the market, until recently, due to the Banking Royal Commission, we were kept in the dark about their practices and massive profit margins.
The high amount of debt from the residential sector is an important feature of Australian banking. While the housing loans have been the primary source of focus for decades, the housing boom seen in the last decade has helped their profits soar.
But now the concern has turned to the possibility of the housing bubble bursting. This over-reliance the banks have on home loans could have dire consequences.
This is causing Australians, and rightly so, to question the balance in the banking system between competition and regulation.
It took years for the government to finally agree to a royal commission into banks and their accompanying financial services. The inquiry revealed the banking system’s culture of malpractice and misconduct.
Australia’s four biggest banks — Westpac (WBC), Commonwealth Bank of Australia (CBA), Australia and New Zealand Bank (ANZ) and National Australia Bank (NAB) — were the biggest wrongdoers.
The findings from the royal commission included; bribery, fraud and inappropriate lending practices. Unregulated financial advisors and planners’ actions were also questioned.
The findings from the Banking Royal Commissions could bring about positive changes within the banking sector and consumers alike.
The Future of Banking in Australia
The Banking Royal Commission could be the catalyst for wider systematic change. With the inquiry forcing banks to become more responsible, loan and credit conditions could tighten. The best way forward and to smooth out profits and consumer welfare could come from a system that balances risk and opportunity.
Either way, we’ll continue to monitor the goings on of the banking sector and always have a sceptical eye on the banks, the credit and housing market. Here at Money Morning, our aim is to remove you from the vulnerability and the adversity the banks find themselves in on a regular basis.