Australias Banking Industry

Australias Banking Industry
Date: May 2011 Disclaimer This publication has been prepared as a general overview of the Banking Industry in Australia and does not constitute and is not intended to constitute financial product advice as defined under the Corporations Act 2001 (Cwth). Nothing in this document should be construed as a recommendation or statement of opinion intended to influence a person in making an investment decision. The information is made available on the strict understanding that the Australian Trade Commission (Austrade) is not providing professional advice. While all care has been taken in the preparation of this publication, Austrade expressly denies liability for any loss or damage of any nature (including but not limited to any errors or omissions) arising out of or connected with reliance on the contents of this publication. Any person relying on this publication does so entirely at their own risk. Austrade strongly recommends that the reader obtain independent professional advice prior to making any investment decision. Austrades role in the promotion of Australian trade includes facilitating engagement by Australian financial services exporters in markets outside Australia. Austrade is not a promoter of any financial services products or investments and does not provide investment advice. Austrade assumes no responsibility however so arising for any company, product or service mentioned in this document, nor for any materials provided in relation to such products, nor for any act or omission of any business connected with such products. Investors should always make their own enquiries as to whether an investment is appropriate for their needs and should consult an independent and licensed advisor.
Contents
Executive Summary Australias Banking Industry Market Participants Banks Credit Unions Building Societies Non-Deposit-Taking Finance Companies Retail Banking Size and Scope Residential Mortgages Credit Cards Margin Lending Deposits Private Wealth Retirement or Superannuation savings Self-Managed Superannuation Funds Government Reforms Competitive and Sustainable Banking Commercial Banking and Corporate Finance Scope Market Participants Authorised Deposit-taking Institutions Boutique Advisory Firms and Securities Brokers Specialised Finance Companies Commercial Lending Syndicated Debt Project and Infrastructure Finance Trade Finance Corporate Finance and Advisory Mergers and Acquisitions Equity Capital Markets Debt Capital Markets Asset-backed Securities Kangaroo Bonds Over-the-counter and exchange-traded markets Transaction Services Payments System Operations Processing Regulation and Tax Environment Regulation of the financial system Overview Australian Prudential Regulation Authority Australian Securities and Investments Commission Reserve Bank of Australia Federal Treasury Australian Competition and Consumer Commission 5 6 9 9 11 12 12 13 13 14 15 16 16 18 18 18 19 21 21 21 21 21 21 22 25 26 28 30 30 30 33 36 37 39 40 40 44 44 44 44 45 45 45 45 Other regulatory agencies Summary of available operating models Overview Australian Credit Licence Available options Summary of requirements for each option The authorisation and application processes Australian financial services licences Introduction What is a financial service? What is a financial product? Retail and wholesale clients Other considerations Privacy laws Anti-money laundering and similar laws New laws to change the way to take security in Australia Taxation Summary Taxation of business profits Taxation treatment of funding options When is interest withholding tax payable? Exemptions from IWT Notional borrowing by an Australian branch of a foreign bank Deductibility of IWT Phasing down Australian IWT for financial institutions Special treatment for offshore banking units Thin capitalisation Useful Links Appendix A Banking Institutions Appendix B Credit Unions and Building Societies Appendix C Foreign Retail Banks in Australia Appendix D International Expansion of Australias Largest Banks Appendix E Selected Australian Legal and Accounting/Tax Advisors in Financial Services Appendix F Infrastructure Australias Reform and Investment Priorities Appendix G Capital Expenditure in Australias Mining Sector Appendix H Transaction Services Payments System Regulation Payments System Access Points Payment Settlements Future Trends 45 46 46 46 46 47 51 52 52 52 52 53 53 53 53 53 54 54 55 55 55 55 56 56 56 57 57 58 59 60 62 64 67 68 70 72 72 72 73 73
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Australia ranked fifth amongst the worlds leading financial systems and capital markets in the 2010 World Economic Forum Financial Development report.
Executive Summary
Australia has a strong, profitable, sophisticated and well regulated banking sector which is welcoming of new entrants and increasingly engaged in regional and global markets.
The financial sector is the largest contributor to Australias national output, around 11 per cent of Australian output or A$135 billion of real gross value added in 2010.1 Australia ranked fifth amongst the worlds leading financial systems and capital markets in the 2010 World Economic Forum Financial Development report. Total assets of Australias banks, defined as Authorised Deposittaking Institutions (ADIs)2, were A$2.7 trillion. Australia has four large domestic banks (the four pillars) that provide full service retail and commercial lending to the Australian economy; Australia and New Zealand Bank (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), and Westpac Banking Corporation (WBC). Each has a AA rating (Standard & Poors) with only nine of the top 100 banks globally enjoying a rating of AA or higher.3 Foreign banks4 are also well represented in the Australian market with 20 of Forbes top 25 banking institutions having a presence in Australia. The majority of these foreign competitors are focused on commercial banking and capital market activities, although a number are now significant players in the retail banking market. Australias retail banking sector is relatively concentrated, with twenty one banks providing the bulk of banking services to consumers (12 domestic banks, 9 foreign owned subsidiaries). Consumer lending in Australia totalled A$1.3 trillion as at October 2010, of which the largest component is mortgage lending. While the major Australian banks have dominant market shares across most consumer finance lines, there is also increasing competition from foreign banks and regional Australian banks and competition from non-bank lenders (credit unions, building societies and non-deposit-taking specialist finance companies). Australias payments system has undergone, and continues to undergo, change designed to increase competition and innovation. Australians are early adopters of new technology, as reflected in the significant growth in electronic payments, EFTPOS and ATMs in the country. The commercial banking and corporate finance and advisory sector incorporates a full range of services provided to commercial, corporate, government and institutional sectors. Specialist expertise exists in mining and resources, infrastructure and project finance (including public-private partnerships), agriculture, and property. Competition in this sector includes the major and regional domestic banks, foreign banks, securities brokerage companies, specialised corporate advisory firms, and asset finance companies. Australias commercial and corporate advisory market comprises:
A$620 billion commercial lending market. A sizeable syndicated loans market that has raised US$336 billion over the five years to 2010, equivalent to 2.1 per cent of world issuance. The second largest project finance market in Asia-Pacific after India, with US$14.6 billion worth of deals in 2010, or 15 per cent of the regions total. The second largest free-floating stock market in the Asia-Pacific region, and sixth largest globally, with a capitalisation of US$1.1 trillion and 2,072 listed companies. One of the three largest Mergers and Acquisitions markets in Asia-Pacific, with announced deals totalling US$132 billion in 2010 and US$528 billion for the five years to 2010; 3.5 per cent of globally announced deals. The second largest Equity Capital Market in Asia-Pacific and fifth largest globally, with US$199 billion of equity issuance over the five years to 2010. A securitisation market that has resumed growth following the global financial crisis, with A$19.5 billion in RMBS issuance in 2010, up from A$9.9 billion in 2008. A fast growing Kangaroo bond market that has increased from A$9 billion to A$129 billion bonds outstanding over the ten years to October 2010 a compound annual growth rate of 28 per cent. The worlds seventh largest foreign exchange market with total FX turnover averaging US$192 billion per day in April 2010. The US$/A$ pair being the worlds fourth most traded pair after the Euro, Yen and Pound Sterling. The Asia-Pacifics second largest pension fund industry after Japan, at US$1,261 billion in 2010 and, by some measures the fourth largest globally.
Australias banking sector has sought to leverage the countrys strengths in natural resources, infrastructure, public-private partnerships, property and related capital market activities. Foreign banks operating in Australia have also been attracted by our reputation for product innovation, advanced capital and risk management systems, our highly skilled workforce and our proximity to key regional markets. Decisions have also been influenced by our political stability, strong rule of law, transparent and highly regarded regulatory environment, advanced social and economic infrastructure, and enviable lifestyle.
1. Australian Bureau of Statistics cat no. 5206.0 Australian National Accounts: National Income, Expenditure and Product, Dec 2010 (released 02 Mar 2011), Table 6, Gross Value Added by Industry, chain volume measured. 2. ADIs include banks, credit unions and building societies. 3. Ranked by The Banker, Top 1000 World Banks 2010, 6 July 2010. 4. Includes foreign banks with locally incorporated subsidiaries, a foreign bank branch licence or representative office. Australias Banking Industry >5

The financial sector is the largest contributor to Australias national output, generating more than 10 per cent of Australian output or A$135 billion of real gross value added in 2010.5 As at February 2011, total assets of Australias banks,6 stood at A$2.7 trillion accounting for around 56 per cent of the total A$4.9 trillion in financial sector assets. This represents a compound annual growth rate (CAGR) of 13 per cent over the past decade.
Australias Financial Sector Assets September 2010 (A$ Billion)
General Insurance Ofces $134b or 2.7%
Securitisation Vehicles $141.6b or 2.9%
Life ofces, Superannuation Funds & Other Managed Funds $1,707b or 35.0%
Authorised deposit-taking Institutions $2,724b or 55.9%
Registered Financial Corporations $169b or 3.5%
Sources: Reserve Bank of Australia, Statistical Table B1, Assets of Financial Institutions (updated 1 Feb 2011); Austrade
Australia ranks 12th in the world in terms of bank assets as rated by The Banker, Top 1000 World Banks, December 2009. Among 21 countries surveyed by the Asian Bankers 500, Australia has the third largest pool of bank assets in the region after Japan and China. Australias total bank assets accounted for around 240 per cent of the countrys nominal GDP, well above Japan (193), China (178), South Korea (146), India (102), and the regional average (176).
5. Australian Bureau of Statistics cat no. 5206.0 Australian National Accounts: National Income, Expenditure and Product, Dec 2010 (released 02 Mar 2011), Table 6, Gross Value Added by Industry, chain volume measured. 6. Defined as Authorised Deposit-taking Institutions (ADIs), which includes banks, credit unions and building societies.
6 > Australian Trade Commission
The Asian Banker Top 500 Banks

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Country Japan China Australia India Korea Hong Kong Taiwan Singapore Malaysia Thailand New Zealand Indonesia Vietnam Philippines Pakistan Bangladesh Sri Lanka Macau Myanmar Brunei Cambodia TOTAL Numbers of Banks in AB500 123 103 14 43 13 18 35 4 17 14 8 27 19 15 15 17 6 5 2 1 1 500 Total Assets (US$ Billion) 9,779.7 8,853.4 2,388.6 1,258.9 1,213.5 1,143.0 958.7 488.5 405.2 273.0 230.4 214.6 97.9 97.6 67.0 26.0 17.1 14.3 12.0 1.8 0.9 27,542.1 Regional Market Share % 35.51 32.14 8.67 4.57 4.41 4.15 3.48 1.77 1.47 0.99 0.84 0.78 0.36 0.35 0.24 0.09 0.06 0.05 0.04 0.01 0.00 100.00 Total Assets % of GDP 192.9 177.6 240.2 101.8 145.8 542.8 253.3 268.1 210.0 103.4 195.6 39.8 105.1 60.5 41.4 27.5 40.5 67.4 35.0 17.3 8.3 176.2 2009 GDP (US$ Billion) 5,069 4,985 994 1,237 833 211 379 182 193 264 118 539 93 161 162 95 42 21 34 10 11 15,633
Sources: The Asian Banker 500, Issue 101 October 2010; GDP data was sourced from IMF World Economic Outlook October 2010; Macau GDP was sourced from Statistics and Census Service Macau; Austrade
Australias four major banks are amongst the worlds 100 largest by assets and are four of only nine global banks with a rating of AA or higher by Standard & Poors. Moodys rating for the four major Australian banks is Aa2, with stable outlook (18 May 2011). Worlds 100 Largest Banks Credit Rating
3,000
Australias four major banks Assets US$ Billion (as of 31 December 2009)
2,500
2,000
1,500
1,000
500
0 AAA AA AAA+ A ABBB+ BBB BBBNR
Sources: This chart was sourced from the Reserve Bank of Australia Financial Stability Report March 2009, page 25, Graph 38, and updated with the 2009 data of banks assets from The Banker 1000 World Banks 2010 and Standard and Poors Credit Ratings (downloaded 27 July 2010) from Bloomberg; Austrade
The top Australian banks are also within the top 25 banking institutions as ranked by Forbes in its April 2010 top 2,000 companies.
7. The Banker, Top 1000 World Banks 2010, 6 July 2010.
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The Forbes Worlds Leading Companies
Rank1 1 3 5 6 7 8 11 17 21 22 29 34 43 44 48 51 52 53 54 59 67 73 79 83 86
Company JPMorgan Chase Bank of America ICBC Banco Santander Wells Fargo HSBC Holdings BNP Paribas China Construction Bank Barclays Bank of China Lloyds Banking Group UniCredit Group Deutsche Bank Credit Suisse BBVA-Banco Bilbao Vizcaya Banco Bradesco Banco do Brasil Royal Bank of Canada Intesa Sanpaolo Commonwealth Bank Westpac Banking Group Crdit Agricole National Australia Bank ANZ Banking Toronto-Dominion Bank
Country USA USA China Spain USA UK France China UK China UK Italy Germany Switzerland Spain Brazil Brazil Canada Italy Australia Australia France Australia Australia Canada
Sales 115.6 150.5 71.9 109.6 98.6 103.7 101.1 59.2 65.9 52.2 106.7 92.2 63.0 50.3 49.3 59.1 56.1 35.4 50.7 31.8 31.2 92.0 32.5 26.9 23.6
Profits 11.7 6.3 16.3 12.3 12.3 5.8 8.4 13.6 15.2 9.5 4.6 5.6 6.9 6.1 6.0 4.6 5.8 3.6 3.6 3.8 3.0 1.6 2.3 2.6 2.9
Assets (US$ Billion) 2,032.0 2,223.3 1,428.5 1,438.7 1,243.7 2,355.8 2,952.2 1,106.2 2,223.0 1,016.3 1,650.8 1,438.9 2,150.6 988.9 760.4 281.4 406.5 608.1 877.7 500.2 519.0 2,227.2 574.4 420.5 517.3
Market Value 166.2 167.6 242.2 107.1 141.7 178.3 86.7 184.3 56.2 147.0 50.3 44.0 39.8 53.9 48.2 54.5 42.8 78.2 44.7 75.1 71.0 34.4 48.8 53.7 55.4
1. Forbes rank according to an equal weighting of sales, profits, assets and market value. Sources: Forbes, The Worlds Leading Companies, April 2010; Austrade
Australia is well positioned as a banking centre in the region, with 20 of Forbes top 25 banking institutions having a presence in Australia. Australia ranked fifth amongst the worlds 57 leading financial systems and capital markets in the World Economic Forum Financial Development Report 2010. In addition to its geographic position in the Asia-Pacific region, close to the worlds fastest growing economies, Australia offers:
A sizeable domestic economy the fourth largest in the Asia-Pacific (after Japan, China and India); A highly skilled and multilingual workforce where 1.4 million Australians speak an Asian language (equivalent to around onethird of Singapores, and one-fifth of Hong Kongs entire population); Advanced business and IT infrastructure; A sophisticated investor base, including the third largest high-net-worth market in the region (after Japan and China); A stable political and economic environment, and an enviable quality of life; Strong and efficient regulatory environment and legal institutions; and Mature and innovative financial markets including: A leading pension fund market with A$1.3 trillion in funds; The fourth largest pool of investment fund assets globally with A$1.8 trillion FUM; The second largest free-floating stock market in the Asia-Pacific with a market capitalisation of US$1.2 trillion; A fast growing and liquid foreign exchange market having grown 12 per cent CAGR since 1998.
Market Participants
Banks, credit unions and building societies known as Authorised Deposit-taking Institutions (ADIs) provide the bulk of banking services to Australian households, businesses and governments and are prudentially regulated by the Australian Prudential Regulation Authority (APRA). Non-deposit taking finance companies also provide competition in selected consumer credit products.
Banks
Australia has a sound, well capitalised banking sector. Its banks are large by global standards, with a strong retail base, highly developed wealth management capabilities, and full service commercial, trade finance and corporate advisory operations reaching out into the region. There are 56 banks operating in Australia (12 domestic banks, 9 foreign subsidiary banks and 35 foreign branch banks) with total resident assets of A$2.4 trillion as 30 September 2010.8 Australias banking sector offers opportunities for new entrants providing innovative products and distribution systems. Australian banks are increasingly looking to export their expertise in retail banking, funds management, private banking and distribution to the region. The four major domestic banks have the largest market shares in the retail and commercial banking sectors: the Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac Banking Corporation (WBC). They accounted for 77.49 per cent of resident assets (A$2.4 trillion) as at September 2010. Other domestic banks accounted for 9.2 per cent, while foreign bank subsidiaries and branches accounted for 13.4 per cent. The largest of the other domestic retail bank competitors are Suncorp-Metway, Macquarie Bank, Bendigo Adelaide Bank and Bank of Queensland. Of the foreign banks with a subsidiary or branch licence, ING, Bank of Scotland, Citigroup, Deutsche Bank and HSBC have the largest presence as measured by Australian banking assets. ING now ranks fifth in retail banking with its innovative, internet based model. Rabobank has built a strong regional footprint drawing on its rural heritage and is now looking to widen its scale of operations. In addition, there are a number of smaller foreign retail banking operations that target specific immigrant groups including the Arab Bank, Bank of China, Bank of Cyprus and Beirut Hellenic Bank.
8. APRA, Monthly Banking Statistics, September 2010 (issued 29 Oct 2010). 9. Includes Bank of Western Australia Ltd (wholly owned subsidiary of the Commonwealth Bank).
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Assets on Australian Books of Individual Banks (A$ Million)
September 2010 Westpac Banking Corporation Commonwealth Bank of Australia National Australia Bank Ltd Australia and New Zealand Banking Group Ltd Four Major Domestic Banks Bank of Western Australia Ltd1 Suncorp-Metway Ltd Macquarie Bank Ltd Bendigo and Adelaide Bank Ltd Bank of Queensland Ltd AMP Bank Ltd Members Equity Bank Pty Ltd Rural Bank Ltd Total Other Domestic Banks ING Bank (Australia) Ltd Citigroup Pty Ltd HSBC Bank Australia Ltd Rabobank Australia Ltd Investec Bank (Australia) Ltd Bank of Cyprus Australia Ltd Arab Bank Australia Ltd Beirut Hellenic Bank Ltd Bank of China (Australia) Ltd Total Foreign-owned Bank Subsidiaries Bank of Scotland plc Citibank, N.A. Deutsche Bank Aktiengessellschaft UBS AG JPMorgan Chase Bank, National Association BNP Paribas Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. The Royal Bank of Scotland Plc The Bank of Tokyo-Mitsubishi UFJ, Ltd The Hongkong and Shanghai Banking Corporation Ltd Top 10 Foreign-owned Bank Branches Other Foreign-owned Bank Branches Total Foreign-owned Bank Branches TOTAL
1. BankWest (Bank of Western Australia) is a wholly owned subsidiary of the Commonwealth Bank of Australia. Sources: Australian Prudential Regulation Authority, Monthly Banking Statistics, September 2010 (issued 29 October 2010), Table 1; Austrade
Resident Assets 528,148 515,805 407,793 360,592 1,812,338 70,877 70,813 60,560 41,306 32,901 7,746 6,255 4,126 294,584 46,572 22,449 17,917 11,819 4,580 1,483 1,363 950 472 107,605 25,211 22,402 20,819 16,617 15,057 14,452 13,046 11,828 8,684 8,368 156,484 62,878 219,362 2,433,889
Credit Unions
Credit unions operate predominately in the retail sector with business driven by deposit taking, consumer credit and housing loan finance. There is also a small proportion of commercially focussed business targeted at small and medium-sized enterprises (SMEs).10 Many credit unions also distribute products in areas such as health insurance, travel and managed funds as a means of providing greater member value. Australias 107 credit unions had total assets as at September 2010 of A$50.6 billion, which represented an increase of 8 per cent over the year.11 This growth was driven predominantly by housing loans, which account for A$33.9 billion (up more than 8.5 per cent over the same period). There are approximately 900 credit union branches around Australia, although New South Wales is home to the bulk of these with 43.3 per cent of all branches. Queensland accounts for the second largest number, with 17 per cent of credit union branches, followed by Victoria with 15.7 per cent.12 The level of concentration in the credit union sector is significant, with the top five credit unions Credit Union Australia Limited, Australian Central Credit Union, Savings & Loans Credit Union (SA) Limited, Police and Nurses Credit Society, and NSW Teachers Credit Union holding an estimated 42.5 per cent of market share in terms of total industry revenue and 41.8 per cent of total industry assets.13 The credit union sector is going through a period of consolidation and has seen a number of mergers and acquisitions over the last five years, driven by the need to achieve further cost savings through economies of scale. The sector has a diverse range of small and large organisations with the largest credit union having in excess of 400,000 members and around A$7.5 billion in assets.
Top 5 Credit Unions Market Share (% of Revenue) 19.0 7.0 7.0 5.0 4.5 Assets 2008-09 (A$ Million) 7,690 2,595 3,230 2,403 2,893
Credit Union Australia Ltd Australian Central Credit Union Ltd Savings & Loans Credit Union (SA) Ltd Police and Nurses Credit Society NSW Teachers Credit Union
Sources: Annual Reports, IBISWorld Industry Report K7323, Credit Unions in Australia, November 2010, page 23
A list of Australian authorised credit unions as at August 2010 is provided in Appendix B. More information on this sector is available through ABACUS, the peak body representing mutual financial institutions, at www.abacus.org.au.
10. IBISWorld estimates that approximately 4 per cent of Credit Union business is with the commercial sector. IBISWorld Industry Report K7323, Credit Unions in Australia, November 2010. 11. APRA, Quarterly Credit Union and Building Society Performance, September 2010 (issued 30 November 2010). 12. IBISWorld Industry Report K7323, Credit Unions in Australia, August 2010, page 16. 13. Ibid, page 23.
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Building Societies
Australias 11 building societies had total assets as at September 2010 of A$24.6 billion, which represented an increase of 8.7 per cent over the year.14 This growth was driven predominantly by housing loans, which account for A$16.5 billion (up 9.9 per cent over the same period). Similarly to credit unions, the bulk of building society business is in the retail sector, with less than 10 per cent of their activities estimated to be in the commercial sector.15 Building societies tend to target their financing in niche and rural markets that are not adequately covered by the banks.16 They are predominantly located in NSW and Queensland, which are home to an estimated 86 per cent of the industrys establishments. The level of concentration in the building society sector is high, with the top four having around 80 per cent of industry revenue and over 95 per cent of industry assets.17
Top 4 Building Societies Heritage Building Society Limited Newcastle Permanent Building Society Illawarra Mutual Building (IMB) Society Greater Building Society
Market Share (% of Revenue) 25.0 22.0 17.0 15.4
Assets 2008-09 (A$ Million) 7,114 6,303 4,444 4,106
Source: Annual Reports, IBISWorld Industry Report K7322, Building Societies in Australia, August 2010, page 21
A list of Australian authorised building societies as at August 2010 is provided in Appendix B. More information on this sector is available through ABACUS, the peak body representing mutual financial institutions, at www.abacus.org.au.
Non-Deposit-Taking Finance Companies

Non-deposit-taking finance companies represent another significant group of institutions that service the retail banking sector in Australia. These institutions do not take deposits but have traditionally provided strong competition in consumer lending, such as mortgage lending, credit cards, and asset or lease financing (i.e., motor vehicles, computers, furniture). Examples of non-deposit-taking finance companies in Australia include GE Money, Liberty Financial, Resi, La Trobe Financial Services, AIMS Financial Group, Assured Home Loans, Rate Busters and Home Star. As these institutions do not take deposits, they are not required to hold a banking license. However, once they reach a certain size (total assets exceeding A$5 million), they are generally required to register as a registered finance corporation, for the purposes of the Financial Sector (Collection of Data) Act, 2001. Further information, including a list of registered financial corporations, is available from the APRA website at http://www.apra.gov.au/RFC/Registered-Financial-Corporations.cfm. More information on this sector is available through the Australian Finance Conference at www.afc.asn.au, and the Australian Equipment Lessors Association, at www.aela.asn.au.
14. APRA, Quarterly Credit Union and Building Society Performance, September 2010 (issued 30 November 2010). 15. IBISWorld Industry Report K7322, Building Societies in Australia, August 2010. 16. IBISWorld Industry Report K7322, Building Societies in Australia, August 2010. 17. Ibid. 18. APRA website at www.apra.gov.au/ADI/ADIList.cfm#AOBC
Retail Banking
Size and Scope
Consumer lending in Australia has continued to grow rapidly over the past decade, at a compound annual growth rate (CAGR) of 12.6 per cent although in more recent years this growth rate has slowed to single digits. As at October 2010, total housing and other personal credit from Australias financial intermediaries reached A$1.3 trillion. House lending for owner occupiers and investors accounted for 89 per cent of total consumer credit outstanding. Australias Consumer Credit (Incl. Securitisation) Year End, A$ Billion
1,400
Mortgage Owner-occupier (13.5%) Mortgage Investor (13.4%) Other personal (7.2%)
1,200
1,000
A$ Billion
800
600
400
200
0
Oct-2000 Dec-2000 Dec-2001 Dec-2002 Dec-2003 Dec-2004 Dec-2005
Year End
Dec-2006
Dec-2007
Dec-2008
Dec-2009 Oct-2010
Note: The number in the brackets represents compound annual growth rate since 2000. Sources: Reserve Bank of Australia, Statistical Table D2 Lending and Credit Aggregates (Last updated 30 Nov 2010); Austrade
Banks provide the majority of credit to Australian households with a market share of 83 per cent, representing almost A$1.1 trillion as at September 2010. Banks providing deposit-taking services to the household sector are required to be locally incorporated and are prudentially regulated by APRA. There are 12 domestic banks and nine foreign bank subsidiaries in Australia see Appendix A for full list of banks. The table following provides an overview of household loans held by banks as at 30 September 2010. Consumer lending in Australia, defined as loans and advances to households, accounted for 70 per cent of total bank loans and advances. The four major banks accounted for 87 per cent of all household loans, while the other domestic banks accounted for 7.6 per cent, and foreign bank subsidiaries held 5.4 per cent.
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Loans and Advances to Household on Australian Books of Individual Banks (A$ Million)
Households Credit Cards 9,397 8,566 5,101 7,965 31,029 1,260 6 267 359 137 2,029 4,586 991 5,577 38,635
September 2010 Westpac Banking Corporation Commonwealth Bank of Australia National Australia Bank Limited Australia and New Zealand Banking Group Ltd Four Major Domestic Banks Bank of Western Australia Ltd1 Suncorp-Metway Ltd Bendigo and Adelaide Bank Ltd Bank of Queensland Ltd Macquarie Bank Ltd AMP Bank Ltd Members Equity Bank Pty Ltd Total Other Domestic Banks ING Bank (Australia) Ltd Citigroup Pty Ltd HSBC Bank Australia Ltd Arab Bank Australia Ltd Bank of China (Australia) Ltd Bank of Cyprus Australia Ltd Beirut Hellenic Bank Ltd Rabobank Australia Ltd Investec Bank (Australia) Ltd Total Foreign-owned Bank Subsidiaries TOTAL
Housing: Owner-occupied 184,755 169,375 101,098 107,614 562,842 29,993 18,304 12,028 9,455 1,167 3,830 2,978 77,755 27,458 4,785 2,910 126 208 167 122 189 16 35,981 676,593
Housing: Investment 82,190 79,166 49,607 41,207 252,170 8,199 8,099 6,792 7,862 585 1,418 769 33,724 9,240 2,442 3,199 116 141 46 222 23 15,429 301,341
Other 15,403 9,754 17,900 13,806 56,863 569 670 2,516 315 4,520 417 144 9,151 1,133 162 143 8 141 1 1,588 67,653
Total 291,745 266,861 173,706 170,592 902,904 40,021 27,079 21,603 17,632 6,631 5,665 4,028 122,659 36,698 12,946 7,262 385 357 354 345 212 16 58,575 1,084,222
Residential Mortgages
The residential mortgage market in Australia is by far the largest category of loans to households, representing 90 per cent of all bank lending to the household sector. Since 2000, bank mortgage loans for owner-occupied and investment properties have increased much faster (13.5 per cent p.a) than other consumer credit (7.2 per cent p.a.). Australian laws place full recourse lending to residential mortgages in Australia at a national level. This has provided homogeneity across the national mortgage market and places greater responsibility for the loan on the borrower than has been the case in some overseas jurisdictions. Australias market is characterised by high levels of Lenders Mortgage Insurance. This is an additional charge, borne by the lender and often passed on to the borrower, which serves to meet any shortfall arising between the proceeds from foreclosure on the collateral (e.g., residential property) and the loan amount. Typically, lenders require such insurance where the borrowers loan to valuation ratio exceeds 80 per cent. Tax laws are favourable towards residential property ownership, with capital gains tax exempt for owner occupiers and discounts of up to 50 per cent available for investors who own for periods greater than 12 months.19 Investors can also offset the interest expenses and property costs against their income, including other income sources. If their property expenses exceed their property income, these expenses can be negatively geared against other personal income sources.
19. Australian Taxation Office http://www.ato.gov.au/
In July 2010, regulatory oversight for consumer credit protection laws was transferred from the state governments to the federal government under the National Consumer Credit Protection Act 2009. The Act largely replicates the previous statebased Uniform Consumer Credit Code (UCCC). These laws are designed to protect Australian consumers from predatory or unscrupulous lending practices. The emphasis is placed on the provider to ensure that the borrower has the capacity to borrow, is properly informed of their responsibilities and that loans are not written in an unfair or misleading manner. Under these laws, the provider is to access the borrowers capacity to repay; all the repayments, fees and charges associated with the credit provided (including a change in repayments due to the ending of a honeymoon interest rate period). For further information see Regulatory and Tax Environment section.
Credit Cards
The credit card market in Australia has grown steadily over the past decade in terms of number of accounts, transactions and balances outstanding. As at October 2010, there were 14.7 million credit card accounts in Australia, the equivalent of 87 per cent of Australias adult population, with a total balance outstanding of A$48 billion.20 The average outstanding balance is around A$3,200. Australias Credit and Charge Card Statistics (Values and Number, Not Seasonally Adjusted)
60,000
16 14
50,000 12 40,000
A$ Million Number of Accounts ('000, RHS)
10
Number, millions
30,000
8 6
20,000
Balances Outstanding (A$ Million, LHS)
4 2
10,000
0
Mar-2008 Sep-2008 Mar-2009 Sep-2002 Sep-2003 Sep-2004 Sep-2005 Sep-2000 Sep-2006 Sep-2001 Sep-2007 Sep-2009 Mar-2002 Mar-2003 Mar-2004 Mar-2005 Mar-2000 Mar-2006 Mar-2001 Mar-2007 Mar-20010 Sep-20010
Sources: Reserve Bank of Australia, Statistical Table C1 Credit and Charge Card Statistics (Last updated 30 Nov 2010); Austrade
Credit cards are provided by domestic and foreign banks, credit unions, building societies and some specialised credit card providers. In recent years, some banks have provided white labelling services to other mass market channels such as retailers and airlines. Many of Australias largest retailers, such as Coles, David Jones, Harvey Norman, Myer and Woolworths have credit card offers. Within the banks, the four major banks account for 83.6 per cent21 of total bank credit card loans outstanding, while other domestic banks account for 1.6 per cent, and foreign banks, 14.4 per cent.22 The foreign bank share of the credit card market is dominated by two institutions, Citigroup and HSBC, with Citigroup having the bulk of credit card loans outstanding (around 12 per cent market share), the fifth largest provider after the major domestic banks.
20. Reserve Bank of Australia, Statistical Table C1, Credit and Charge Card Statistics as at October 2010. 21. Includes Bank of Western Australia Ltd (wholly owned subsidiary of the Commonwealth Bank). 22. Australian Prudential Regulation Authority, Monthly Banking Statistics, September 2010 (issued 29 October 2010), Table 2.
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Margin Lending
Margin lending has developed as another consumer credit product over the past two decades. Margin lending is borrowing to invest in financial securities typically listed shares or managed funds. Each individual security can be leveraged up to a set loan to value ratio (LVR). If the securities move outside of the allowed valuation limit, borrowers are issued a margin call that requires them to either add cash to their margin account or to sell down existing securities to bring the loan back under the LVR limit. Over the ten years to September 2010, balances outstanding on margin loans grew at 10 per cent (CAGR) to A$17.8 billion. Growth was rapid during the seven years to 2007, but reduced following the global financial crisis. Today, there are 205,000 client accounts. Quarterly statistics published by the Reserve Bank of Australia indicate that the average loan to security valuation is 37.5 per cent, with a mean loan size of A$91,000. Australias Margin Lending (September each year)
40 35 30 25
Number of Accounts Margin Lending Credit Outstanding (A$ Billion)
250,000
200,000
150,000 20 15 10 50,000 5 100,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sources: Reserve Bank of Australia, Statistical Table D10; Austrade
Deposits
As at September 2010, total deposits23 (retail and corporate/wholesale) held by banks, credit unions and building societies were A$1,485 billion, significantly up from A$780 billion five years ago. This represents a compound annual growth rate of 13.7 per cent since September 2005. Banks account for 95 per cent of these deposits. The following table provides an overview of household deposits held by banks24 as at 30 September 2010. Deposits sourced from households amounted to $477.8 billion and accounted for 37 per cent of total bank deposits, with the remainder sourced from businesses, governments and institutions. The four major banks accounted for 78.725 per cent of all deposits, while the other domestic banks accounted for 10.4 per cent and foreign banks26 11.0 per cent.
23. Reserve Bank of Australia, statistical tables B3, B7 and B8. 24. The domestic books of a bank has the following scope: includes operations/transactions booked or recorded inside Australia; does not consolidate Australian or offshore controlled entities; includes transactions of Australian-based offshore banking units; excludes transactions of overseas-based offshore banking units; excludes offshore branches; and excludes transactions, assets and liabilities with offshore. 25. Includes Bank of Western Australia Ltd (wholly owned subsidiary of the Commonwealth Bank). 26. Includes foreign owned subsidiary and foreign branch licenced banks.
Deposits on Australian Books of Individual Banks (A$ Million)
September 2010 Commonwealth Bank of Australia Westpac Banking Corporation National Australia Bank Ltd Australia and New Zealand Banking Group Ltd Four Major Domestic Banks Bank of Western Australia Ltd1 Bendigo and Adelaide Bank Ltd Suncorp-Metway Ltd Macquarie Bank Ltd Bank of Queensland Ltd Members Equity Bank Pty Ltd Rural Bank Ltd AMP Bank Ltd Total Other Domestic Banks ING Bank (Australia) Ltd HSBC Bank Australia Ltd Citigroup Pty Ltd Rabobank Australia Ltd Investec Bank (Australia) Ltd Arab Bank Australia Ltd Bank of Cyprus Australia Ltd Beirut Hellenic Bank Ltd Bank of China (Australia) Ltd Total Foreign-owned Bank Subsidiaries BNP Paribas Citibank, N.A. Deutsche Bank Aktiengessellschaft Bank of Scotland plc The Royal Bank of Scotland Plc The Bank of Tokyo-Mitsubishi UFJ, Ltd Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. Sumitomo Mitsui Banking Corporation The Northern Trust Company Mizuho Corporate Bank, Ltd Top 10 Foreign-owned Bank Branches Other Foreign-owned Bank Branches Total Foreign-owned Bank Branches TOTAL
1. BankWest (Bank of Western Australia) is a wholly owned subsidiary of the Commonwealth Bank of Australia.
Households 130,008 113,058 64,865 66,840 374,771 14,349 17,265 14,680 7,015 14,896 1,271 1,320 1,254 72,050 17,095 3,876 6,256 1,830 242 377 459 491 309 30,935 0 59 59 477,815
Total Deposits 288,559 276,907 216,748 194,527 976,741 42,622 33,417 32,390 29,929 27,232 4,186 3,485 3,524 176,785 27,624 12,146 7,670 4,966 2,370 1,170 980 780 311 58,017 12,778 6,766 6,608 5,586 4,426 3,794 3,541 3,440 3,095 2,696 52,730 31,247 83,977 1,295,518
Sources: Australian Prudential Regulation Authority, Monthly Banking Statistics, September 2010 (issued 29 October 2010), Table 4; Austrade
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Private Wealth Private wealth is a key driver of retail deposit demand. Australias private wealth market now ranks among the largest and fastest growing in the world. Since 1990, Australias total private sector wealth (including consumer durables, dwellings, deposits, shares and other equities, and reserves of life offices and pension funds) grew by 8.3 per cent per annum to A$6.7 trillion.27 Australia was the third largest high net worth individual (HNWI) market in the Asia-Pacific region and the 10th largest in the world in 2009.28 The number of HNWI in Australia, defined as persons with greater than US$1 million in investable assets, grew 34.4 per cent to reach 173,600, as at December 2009. Australia had almost 6 per cent of the regions HNWI population, accounting for 5.4 per cent of the regions total wealth, with a combined value of US$519 billion. See Austrades publication on the Private Banking Industry in Australia http://www.austrade.gov.au/ArticleDocuments/2792/Private-Banking-in-Australia-Publication.pdf.aspx Retirement or Superannuation savings In addition to voluntary savings, Australia has a mandatory retirement or superannuation savings regime which requires 9 per cent of income to be deposited in superannuation accounts which, generally speaking, can only be accessed their preservation age. Recently, the Government foreshadowed its intention to introduce legislation to gradually increase the compulsory level of superannuation savings to 12 per cent by 2019-20.29 The pool of investment fund assets (including mandatory pension, self-managed superannuation and other investment assets) stands at A$1.8 trillion, which by some measures is the fourth largest pool of savings globally.30 The majority of these superannuation savings are managed by trustees of APRA-regulated superannuation funds and invested at arms-length by professional investment managers. See Austrades publication on the Investment Management Industry in Australia http://www.austrade.gov.au/ArticleDocuments/2792/Investment-Management-Industry-in-Australia.pdf.aspx Self-Managed Superannuation Funds Self-Managed Superannuation Funds (SMSFs) are a superannuation fund managed by the members themselves as trustees of the fund. Each SMSF can have up to four members, where all members are required to be trustees. Statistics released by the Australian Prudential Regulation Authority in December 2010 show that the number of SMSFs grew from 412,560 to 439,397 over the past 12 months. SMSFs now hold A$420.6 billion, or 32 per cent of the nations A$1.3 trillion superannuation pool. The latest Multiport SMSF Investment Patterns Survey October 2010 revealed that SMSF members allocated 21.8 per cent of their assets to cash and short-term deposits in September 2010.
27. Private wealth is defined as the sum of household dwellings, household consumer durables (including market values of motor vehicles, furnishings and other household equipment), and household and unincorporated enterprises financial assets (including deposits, assets of life offices, superannuation funds and friendly societies, shares and other equity, unfunded superannuation claims and all other). Data sourced from Reserve Bank of Australia, Statistical Table B20. 28. Merrill Lynch Capgemini, World Wealth Report 2010 and Asia-Pacific Wealth Report 2010. See also Austrades data alert http://www.austrade.gov.au/ ArticleDocuments/2792/Data-Alert-101013-Asia-Pacific-Wealth-Report.pdf.aspx 29. See the Australian Governments A tax plan for our future http://www.futuretax.gov.au/pages/FairerSuperannuation.aspx 30. See Austrades publication Investment Management Industry in Australia http://www.austrade.gov.au/ArticleDocuments/2792/Investment-Management-Industry-inAustralia.pdf.aspx
Superannuation Industry in Australia

Assets (A$ Billion) Jun 2009 Jun 2010 By fund type Corporate Industry Public Sector Retail Sub Total Pooled Superannuation Trusts Small APRA funds Single-member ADFs Self-managed Super Funds TOTALB
a
Number of Entities Jun 2009 Jun 2010
54.0 191.8 153.0 304.7 703.5 69.7 2.0 0.1 334.2 35.5 1,075.3
56.2 225.5 175.3 339.0 795.9 79.1 1.6 0.0 390.8 38.9 1,227.2
190 67 40 166 463 82 4,277 112 401,929 406,863
168 65 39 154 426 79 3,869 103 428,198 432,675
Balance of Life Office Statutory Funds
a. Estimated data on self-managed superannuation funds are provided by the Australian Taxation Office (ATO). b. Total assets does not include pooled superannuation trusts. Sources: Australian Prudential Regulation Authority Statistics, Quarterly Superannuation Performance, June 2010 (issued 9 September 2010); Austrade
Government Reforms: Competitive and Sustainable Banking

In December 2010, the Australian Government announced three broad streams of reform across the Australian banking system, titled Competitive and Sustainable Banking System.
Stream One: Empower consumers to get a better deal. Stream Two: Support smaller lenders to compete with big banks. Stream Three: Secure the long-term safety and sustainability of our financial system.
These reforms are aimed at boosting consumer flexibility to transfer deposits and mortgages; banning exit fees on new home loans; empowering the Australian Competition and Consumer Commission (ACCC) to prosecute anti-competitive price signalling; and a community awareness and education campaign. The Government will also introduce a new official Government Protected Deposits symbol for ADIs, regulated by APRA, to help consumers identify that their deposits, up to a certain cap, have the protection of the Financial Claims Scheme (FCS) in the unlikely event that the entity is wound up. The FCS, which was introduced in October 2008, is to be made a permanent feature of the Australian financial architecture and the Government has been working with the Council of Financial Regulators to determine an appropriate cap to apply from October 2011 onwards. The current cap is A$1 million per depositor per ADI. Funding sources will be supported through additional Government investments in high quality AAA-rated Residential Mortgage Backed Securities (RMBS). This is a further A$4 billion investment, taking the total Government support to RMBS since the financial crisis to A$20 billion. The Government has tasked the Treasury to design bullet RMBS structures and will amend the Banking Act 1959 to allow Australian banks, credit unions and building societies to issue covered bonds. Full details of the Governments announced banking reforms are available from the Treasury website: http://www.treasury.gov.au/banking/content/_downloads/competitive_and_sustainable_banking.pdf
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Commercial Banking and Corporate Finance

Scope
Services to the commercial sector can be segregated into a number of core markets:31
Commercial Lending Intermediated lending to SMEs, large corporates, institutions and government;
Corporate Finance and Advisory: Mergers and Acquisitions M&A, demergers and other advisory; Equity Capital Markets Initial public offerings (IPOs), secondary raisings, underwriting; and Debt Capital Markets corporate, government and institutional bonds, structured finance securitisation, syndicated loans and project finance.
Australias commercial and corporate advisory sectors are known for specialised expertise in particular industries including energy, mining and resources, infrastructure and project finance, agriculture, and real estate.
Market Participants
Authorised Deposit-taking Institutions There are 56 banks licensed to service wholesale clients in Australia and a further 16 banks with representative offices. Nine foreign banks operate with a subsidiary license, and a further 35 as a foreign bank branch. In addition, there is a growing number of emerging market banks that have entered Australia, particularly from China and India, primarily focused on servicing their corporate clients in Australia, as well as Australian companies interested in entering their markets. A list of authorised banking institutions in Australia is provided in Appendix A.32 There has been a re-alignment of foreign bank operations in Australia following the global financial crisis changes in Australia largely reflect outcomes of parent banks. Leading houses such as Citibank, Deutsche Bank, HSBC, JPMorgan, Royal Bank of Scotland, UBS, and others have a substantial commercial banking presence here. Boutique Advisory Firms and Securities Brokers Corporate advisory firms and small specialist finance companies provide competition in niche areas such as mergers and acquisitions advisory. Included in this category are the larger accounting firms that have a corporate advisory arm, as well as a range of smaller specialist boutique firms, including: Moelis & Company, Palladio Partners, Gresham Partners, Caliburn Partnership and BKK Partners. Securities brokers or stockbrokers are generally categorised as either institutional or retail. Many of these firms provide auxiliary services in capital market financing. Specialised Finance Companies As in the consumer lending area, non-deposit-taking specialised finance companies provide an alternative source of financing for corporations and institutions. Such institutions include asset finance and leasing companies, vendor finance companies, factoring or inventory finance companies and specialised trade finance companies. This sector was significantly affected by the financial crisis due to its dependence on wholesale markets and securitisation to fund its activities. In addition, the Australian operations of a number of foreign owned institutions were hit hard by effects in their home markets.
31. Many foreign banks providing commercial banking and corporate advisory services are also active in investment and asset management. This sector is covered in Austrades Investment Management Industry in Australia publication, 2010. http://www.austrade.gov.au/ArticleDocuments/2792/Investment-Management-Industry-in-Australia.pdf.aspx 32. Source: APRA website at http://www.apra.gov.au/ADI/ADIList.cfm
> 21
Commercial Lending
The level of total business loans outstanding from Australias financial institutions was in excess of A$620 billion as at October 2010.33 Commercial Lending credit to the non-financial sector grew at a CAGR of 11.1 per cent over the ten years to October 2010, with lending to the financial sector growing at 18.8 per cent CAGR over the same period. Lending grew more rapidly in the early part of the decade and in 2007 and 2008 there was a market shift to intermediated lending as debt capital markets became more difficult to access. Since 2008, commercial lending has been in decline, subtracting 6.6 per cent in 2009 and 2.4 per cent in 2010. Coinciding with this, equity capital markets saw a rise in secondary market issuance, with many companies choosing to increase the proportion of their capital funded from equity (see Equity Capital markets section). Australias Bank Commercial Lending Finance and Non-Finance (Year End, A$ Billion, Excluding Securitisation)
800 700 600 500
A$ Billion Financial intermediaries (18.8%) Non-financial sector (11.1%)
400 300 200 100 0

Dec-2000 Dec-2001 Dec-2002 Dec-2003 Dec-2004 Dec-2005
Year End
Dec-2006
Dec-2007
Dec-2008
Dec-2009
Oct-2010
Note: The number in the brackets of the legends represents the compound annual growth rate since 2000. Sources: Reserve Bank of Australia, Statistical Table D5 Lending and Credit Aggregates (Last updated 30 Nov 2010); Austrade
The major domestic banks provide the bulk of commercial intermediated lending in Australia, which includes loans to large corporates, financial institutions, government organisations and SMEs. Regional banks, credit unions and building societies provide some additional competition in the smaller enterprise sector and niche areas such as rural and agricultural organisations. Similarly, leasing companies and other non-deposit taking finance companies provide specialised lending. As at February 2011, the major domestic banks account for 72 per cent34 of bank loans to non-financial corporations, while the other domestic banks account for 9 per cent and foreign banks 19 per cent. Suncorp-Metway and Bendigo Adelaide Bank are the most significant competitors in the regional domestic banks, while the largest foreign bank competitors in non-financial commercial lending are Rabobank, Bank of Tokyo-Mitsubishi, ING and BNP Paribas.35
33. Reserve Bank of Australia, Statistical Table D2, Lending and Credit Aggregates (last updated 30 November 2010). 34. Includes Bank of Western Australia, a wholly owned subsidiary of the Commonwealth Bank of Australia. 35. APRA, Monthly Banking Statistics, May 2010 (issued 30 June 2010).
Loans and Advances to Corporations on Australian Books of Individual Banks (A$ Million)
September 2010 National Australia Bank Ltd Australia and New Zealand Banking Group Ltd Westpac Banking Corporation Commonwealth Bank of Australia Four Major Domestic Banks Bank of Western Australia Ltd1 Suncorp-Metway Ltd Bendigo and Adelaide Bank Ltd Macquarie Bank Ltd Bank of Queensland Ltd Rural Bank Limited AMP Bank Limited Members Equity Bank Pty Ltd Total Other Domestic Banks Rabobank Australia Ltd ING Bank (Australia) Ltd HSBC Bank Australia Ltd Investec Bank (Australia) Ltd Bank of Cyprus Australia Ltd Arab Bank Australia Ltd Beirut Hellenic Bank Ltd Citigroup Pty Ltd Bank of China (Australia) Ltd Total Foreign-owned Bank Subsidiaries The Bank of Tokyo-Mitsubishi UFJ, Ltd BNP Paribas The Royal Bank of Scotland Plc Sumitomo Mitsui Banking Corporation Mizuho Corporate Bank, Ltd Bank of China Limited UBS AG ING Bank N.V. The Hongkong and Shanghai Banking Corporation Ltd Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. Top 10 Foreign-owned Bank Branches Other Foreign-owned Bank Branches Total Foreign-owned Bank Branches TOTAL
Non-financial Corporations 92,370 71,747 63,476 56,673 284,265 23,313 17,360 7,933 4,147 5,297 3,572 583 51 62,256 11,001 3,287 3,097 2,357 842 526 405 31 0 21,547 6,728 5,921 4,214 4,661 3,856 4,131 1,696 2,687 2,181 2,574 38,649 18,099 56,748 424,816
Financial Corporations 9,936 7,410 10,668 12,674 40,689 698 397 76 1,253 0 0 5 19 2,448 0 0 99 0 0 63 0 131 0 293 347 200 981 398 687 121 1,361 0 436 0 4,530 4,517 9,047 52,477
Total 102,306 79,157 74,144 69,347 324,954 24,011 17,757 8,009 5,400 5,297 3,572 587 70 64,703 11,001 3,287 3,197 2,357 842 589 405 162 0 21,840 7,075 6,121 5,195 5,059 4,543 4,252 3,057 2,687 2,617 2,574 43,179 22,616 65,795 477,292
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Over the past ten years, the fastest growing segment of commercial lending in Australia has been to larger corporations, borrowing over A$2 million. Loans to SMEs have grown more gradually during this period. Australias Bank Lending To Business Total Credit Outstanding by Size (A$ Billion)
Under A$100,000 Jun-2000 Jun-2001 Jun-2002 Jun-2003 Jun-2004 Jun-2005 Jun-2006 Jun-2007 Jun-2008 Jun-2009 Jun-2010 Share % CAGR % 22.6 22.8 23.7 24.3 24.8 24.5 24.1 23.0 23.7 25.3 26.0 4.0 1.4
$100 000 to < $500,000 44.1 46.3 50.9 54.3 60.2 66.4 70.1 70.8 75.0 72.6 67.3 10.2 4.3
$500 000 to < $2 Million 39.0 42.0 45.2 50.2 57.8 67.6 76.5 93.3 101.1 103.3 101.4 15.4 10.0
$2 Million and Over 151.2 164.7 164.6 169.7 196.1 215.6 268.7 338.0 449.7 489.9 464.1 70.4 11.9
Total 256.9 275.8 284.4 298.6 338.9 374.1 439.5 525.1 649.6 691.0 658.8 100.0 9.9
Sources: Reserve Bank of Australia, Statistical Table D7 Bank Lending To Business (Last updated 16 Sep 2010); Austrade
Growth in lending by industry sector has varied considerably over the past 10 years. The fastest growing segments have been finance and insurance, wholesale and retail trade, transport, storage, agriculture and fishing.
Australias Bank Lending To Business Total Credit Outstanding by Sector (A$ Billion)
Agriculture, Fishing, etc Jun-2000 Jun-2001 Jun-2002 Jun-2003 Jun-2004 Jun-2005 Jun-2006 Jun-2007 Jun-2008 Jun-2009 Jun-2010 Share % CAGR % 23.2 25.2 26.8 29.0 34.1 39.3 43.5 47.2 53.7 57.4 59.3 9.0 9.8
Mining 7.5 7.5 7.5 6.1 5.2 5.7 6.8 9.4 11.7 11.5 15.1 2.3 7.3
Manufacturing 30.0 28.7 28.9 29.2 31.8 31.3 37.1 40.8 44.6 43.7 39.7 6.0 2.8
Wholesale Trade, Retail Trade & Transport Finance & Construction & Storage Insurance 13.1 13.6 12.8 14.4 17.7 19.4 21.3 24.8 30.5 31.5 28.3 4.3 8.0 34.3 35.2 40.7 43.9 49.3 54.9 64.2 74.4 87.2 93.2 92.9 14.1 10.5 39.5 41.9 43.4 42.7 47.4 49.6 62.5 80.5 123.7 133.1 126.1 19.1 12.3
Other 109.4 123.8 124.2 133.2 153.5 173.9 204.1 248.0 298.2 320.6 297.4 45.1 10.5
Total 256.9 275.8 284.4 298.6 338.9 374.1 439.5 525.1 649.6 691.0 658.8 100.0 9.9
Sources: Reserve Bank of Australia, Statistical Table D7 Bank Lending To Business (Last updated 16 Sep 2010); Austrade
Syndicated Debt Global syndicated lending for the year to December 2010 totalled US$2.7 trillion, up 49 per cent from the previous year. The energy and power sector was most active, with a market share of 21 per cent. Australian mandated loans rose by 42 per cent for this same period, with total proceeds of US$66 billion. Australias total syndicated loans represent around 2.1 per cent of the global market. Industrials, energy, power and financials were the most active, with combined market share of 57 per cent of total syndicated loan proceeds (24 per cent, 17 per cent and 16 per cent respectively). Other major sectors included materials (14 per cent), real estate (14 per cent) and telecommunications (9 per cent).36 The four major banks are prominent in this market, in terms of both arrangers and bookrunners.37 Significant foreign competitors include RBS, Mitsubishi, Sumitomo Mitsui, JP Morgan, Credit Agricole and HSBC.
Australian Syndicated Loans Ranking
Mandated Arranger ANZ Banking Group Westpac Banking Commonwealth Bank of Australia National Australia Bank RBS Mitsubishi UFJ Financial Group Sumitomo Mitsui Financial Group Inc JP Morgan Credit Agricole CIB HSBC Holdings PLC
2010 Rank 1 2 3 4 5 6 7 8 9 10
2009 Rank 1 3 2 4 7 9 10 18 8 12
Bookrunner ANZ Banking Group Westpac Banking Commonwealth Bank of Australia National Australia Bank RBS JP Morgan Bank of China Ltd Mitsubishi UFJ Financial Group Mizuho Financial Group HSBC Holdings PLC
2010 Rank 1 2 3 4 5 6 7 8 9 10
2009 Rank 3 1 4 2 6 16 14 9 7 18
Sources: Thomson Reuters, Global Syndicated Loans Review, Full Year 2010; Austrade
On a five year total basis, Australian syndicated loan activity exceeded US$330 billion. Australian activity represents around 2.1 per cent of the world market and around 13 per cent of the Asia-Pacific region.
36. Thomson Reuters, Global Syndicated Loans Review, Full Year 2010. 37. Bookrunner is the main underwriter to the issue.
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Worldwide Syndicated Loans
2010 2009 2008 2007 2006 2006-2010 Proceeds Market Proceeds Market Proceeds Market Proceeds Market Proceeds Market Proceeds Market (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % Global By country USA Japan UK Germany France Canada Australia Taiwan UAE Hong Kong Singapore Brazil Mexico New Zealand Malaysia By Region Americas Europe Africa/Middle East 1,222.3 818.3 67.6 45.0 30.1 2.5 694.4 608.5 470.9 56.1 37.9 33.3 25.7 3.1 1,205.4 784.7 533.6 100.3 45.9 29.9 20.3 3.8 2,339.0 1,633.6 505.5 139.9 50.6 35.4 10.9 3.0 1,925.9 1,481.2 470.0 104.6 48.4 37.2 11.8 2.6 7,386.9 5,326.4 2,590.4 468.5 46.8 33.8 16.4 3.0 1,089.0 252.1 190.9 96.3 129.2 110.1 66.0 55.6 16.4 41.1 22.8 7.8 9.9 8.6 11.1 40.1 9.3 7.0 3.5 4.8 4.0 2.4 2.0 0.6 1.5 0.8 0.3 0.4 0.3 0.4 579.2 249.2 82.8 104.2 89.7 71.3 46.4 22.1 22.1 18.4 16.5 15.0 24.8 5.9 3.8 31.7 13.6 4.5 5.7 4.9 3.9 2.5 1.2 1.2 1.0 0.9 0.8 1.4 0.3 0.2 1,036.2 289.7 196.7 84.7 119.1 123.1 52.7 31.1 45.7 10.8 35.2 13.9 6.3 7.0 5.4 39.5 11.0 7.5 3.2 4.5 4.7 2.0 1.2 1.7 0.4 1.3 0.5 0.2 0.3 0.2 2,136.2 208.4 389.8 231.9 255.0 137.3 100.3 29.1 45.0 20.7 14.1 25.3 20.1 6.5 10.8 46.3 4.5 8.4 5.0 5.5 3.0 2.2 0.6 1.0 0.4 0.3 0.5 0.4 0.1 0.2 1,735.4 216.3 314.1 303.1 226.5 118.5 70.9 29.1 33.8 31.7 19.7 33.6 19.4 11.4 7.2 43.6 5.4 7.9 7.6 5.7 3.0 1.8 0.7 0.8 0.8 0.5 0.8 0.5 0.3 0.2 6,576.1 1,215.6 1,174.3 820.1 819.5 560.4 336.3 166.9 163.0 122.7 108.2 95.6 80.5 39.4 38.3 41.7 7.7 7.4 5.2 5.2 3.6 2.1 1.1 1.0 0.8 0.7 0.6 0.5 0.2 0.2 2,718.7 100.0 1,829.9 100.0 2,624.0 100.0 4,617.9 100.0 3,981.7 100.0 15,772.2 100.0
Asia-Pacific/Central Asia610.5 22.5
Sources: Thomson Reuters Global Syndicated Loans Review, Full Year 2010, Syndicated Loans Review, Fourth Quarters of 2009, 2008 and 2007; Austrade
Project and Infrastructure Finance The global project finance market showed a significant rebound in 2010, with 587 deals valued at US$206.6 billion. This represented an expansion in total loans of 44.4 per cent compared to the previous year. According to the latest survey of Reuters Thomson, each region saw an increase in deal activity: Americas increased 24.6 per cent, Europe/Middle East/Africa (EMEA) increased 28.3 per cent and Asia Pacific, with the largest rise, increased 69.8 per cent. The Asia Pacific (including Japan) accounted for 47.2 per cent of global activity (US$97.5 billion). This increased from a global share of 40.2 per cent in 2009 (US$57.4 billion). Australia has remained the second most active market in the region, behind India, with 32 deals valued at US$14.6 billion38, which accounted for 15 per cent of the regions total. Australias four major banks all ranked within the top 20 mandated arrangers for the Asia Pacific in 2010.39 Infrastructure is one of the most significant areas for project financing and Australia is widely recognised as a global leader and innovator in infrastructure financing. The nation has a long history of engagement in the infrastructure sector, beginning with the privatisations of the late 1980s and 1990s that has resulted in extensive experience with private infrastructure financing and public-private partnerships (PPPs).
38. Thomson Reuters, Project Finance Review, Full Year 2010. 39. Ibid.
Australian expertise extends across the full spectrum of economic and social infrastructure including toll roads, airports, railway rolling stock and terminals, broadcast communications, power generators, gas and electricity transmission and distribution, shipping ports, water utilities, schools, hospitals, aged care facilities and public housing. The Australian infrastructure market is among the most sophisticated markets in the world with estimated A$9 billion in infrastructure construction projects work contracted annually. In the 2009-10 Budget, the Australian Government committed A$22 billion to improve the nations infrastructure in transport, communications, energy, education and health sectors as part of the Building Australia Fund. In addition, State Governments have committed an estimated A$2.5 billion to infrastructure projects.40 Infrastructure needs and priorities for Australia are laid out by Infrastructure Australia. Appendix F provides an overview of priority projects as at June 2010. The value of these projects totals almost A$83 billion.41 Infrastructure Australias Investment Priorities
Stage
Definition
Total Cost Estimates (A$ Million) 19,634
Early Stage
Initiatives address a nationally significant issue or problem, but the identification or development of the right solution is at an early stage. Initiatives clearly address a nationally significant issue or problem and, there has been a considerable amount of analysis of potential solutions. Initiatives have strong strategic and economic merit, and are only not ready to proceed due to a small number of outstanding issues. Initiatives meet all of Infrastructure Australias criteria.
Real Potential Threshold Ready to proceed
41,522 10,123 11,566
Source: Infrastructure Australia, Getting the fundamentals right for Australias infrastructure priorities, June 2010 http://www.infrastructureaustralia.gov.au/publications/files/Report_to_COAG_ 2010.pdf
Infrastructure Australia Infrastructure Australia (IA) was established in 2008 to coordinate a national approach to Australias future infrastructure needs. The agency plays an advisory role to governments, investors and owners of infrastructure concerning:
Significant national infrastructure priorities and initiatives; Recommendations for policy and regulatory reforms to drive better efficiencies in the utilisation of national infrastructure networks; Options to address hindrances to the development and provision of efficient national infrastructure; Infrastructure needs of the Australian public; and Possible financing mechanisms.
More information on Infrastructure Australia and its policies and guidelines is available at: www.infrastructureaustralia.gov.au
In addition to public sector infrastructure projects, Australia is currently undergoing significant investment in private sector projects that will increase the output of Australias mineral and energy sectors. Infrastructure projects directly associated with the minerals and energy sector currently stand at 15, with an estimated cost of A$11.0 billion in committed projects, and a further 31 valued at A$27.8 billion in less advanced projects.42 Committed infrastructure projects include iron ore and coal ports, rail projects and gas pipelines. Appendix G outlines the future capital expenditure commitments within Australias minerals and energy sectors.
40. KPMG, Federal Budget 2009-10 national infrastructure spending priorities June 2009. 41. Infrastructure Australia, Getting the Fundamentals Right for Australias Infrastructure Priorities, June 2010. 42. ABARE-BRS, Minerals and energy Major development projects report, October 2010.
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Trade Finance Australia has an open, diversified economy that is actively engaged in international trade and has increasingly exported goods and services to the fast growing Asian region. In 2010, Australia exported A$231 billion in merchandise trade, having grown at 7.7 per cent CAGR since the year 2000. The majority of Australias exports are natural resources and primary products and account for around 70 per cent of Australias total merchandise exports.
Australias Merchandise Exports, FOB Value (A$ Billion)

2000 Crude Materials, Inedible, except Fuels Metalliferous Ores & Metal Scrap Mineral Fuels & Related Materials Coal, Coke & Briquettes Petroleum & Related Materials Gas, Natural & Manufactured Manufactures Food & Beverage & Tobacco & Live Animals Other
1
2002 22.0 13.9 24.7 12.9 8.6 3.2 37.2 24.1 11.5 119
2004 23.1 16.3 23.8 13.5 7.1 3.3 33.9 23.7 13.2 118
2006 39.2 32.7 39.3 23.4 9.8 6.2 42.0 23.4 19.9 164
2008 56.3 50.0 71.1 46.9 13.8 10.4 47.1 25.2 22.7 222
2010 75.6 68.9 66.6 43.1 12.9 10.5 40.4 23.7 24.5 231
2010 % Share 32.8 29.9 28.8 18.7 5.6 4.6 17.5 10.3 10.6 100
CAGR % 2000/2010 13.5 17.8 11.2 16.5 2.1 12.6 1.5 1.2 9.3 7.7
21.2 13.4 23.0 9.3 10.5 3.2 34.9 21.0 10.1 110
TOTAL
1. Commodities not classified elsewhere in the Standard International Trade Classification. CAGR = Compound Annual Growth Rate. Sources: Australian Bureau of Statistics Cat No. 5368.0 International Trade in Goods and Services, Australia, Table 12a. Merchandise Exports; Austrade
Over the past ten years, Australian exports to Asia have grown more rapidly than other regions. Four of Australias top five country export destinations are now based in Asia.
Exports 2010 (% Share)

Middle East 2.9% Oceania 4.9% Americas 6.1% Africa 1.6%
Imports 2010 (% Share)

Middle East 2.2% Oceania 5.3% Africa 1.6%
Americas 14.3% South Asia 7.8% South Asia 1.2% Europe 9.1% East Asia 67.9% Europe 20.9% East Asia 54.6%
Sources: Department of Foreign Affairs and Trade, Monthly Trade Data Dec 2010, Table 3; Austrade
Sources: Department of Foreign Affairs and Trade, Monthly Trade Data Dec 2010, Table 4; Austrade
Australias Merchandise Exports by Country, FOB Value (A$ Billion)
2000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 China Japan South Korea India USA Taiwan UK New Zealand Thailand Singapore Indonesia Malaysia Hong Kong Netherland UAE Papua New Guinea Germany South Africa Saudi Arabia Brazil Other Markets TOTAL
CAGR = Compound Annual Growth Rate.
2002 8.4 22.2 10.0 2.5 11.5 4.7 5.6 7.9 2.5 5.0 3.1 2.3 3.5 1.4 1.3 1.0 1.6 1.3 2.4 0.4 20.8 119
2004 11.0 22.2 9.2 5.4 9.5 4.1 5.1 8.8 3.1 3.3 3.2 2.4 2.7 1.5 1.3 0.9 1.3 1.6 2.0 0.6 18.4 118
2006 20.4 32.4 12.4 8.8 10.1 6.3 8.1 8.9 4.3 4.6 4.4 2.8 3.2 2.8 2.0 1.5 1.4 2.3 2.2 0.9 24.0 164
2008 32.3 50.8 18.4 13.5 12.1 8.3 9.3 9.3 5.3 6.1 4.3 4.0 3.0 3.6 3.9 1.6 2.1 2.5 2.5 1.6 27.7 222
2010 58.3 43.6 20.4 16.4 9.3 8.4 8.3 8.0 5.8 4.8 4.5 3.6 3.2 2.6 2.1 2.0 1.8 1.8 1.6 1.6 22.6 231
2010 % Share 25.3 18.9 8.8 7.1 4.0 3.6 3.6 3.5 2.5 2.1 1.9 1.6 1.4 1.1 0.9 0.9 0.8 0.8 0.7 0.7 9.8 100
CAGR % 2000/2010 25.5 7.2 8.5 24.5 -1.7 4.2 8.3 2.0 11.6 -1.9 4.5 4.4 -1.2 3.9 7.8 7.5 3.4 3.6 -0.1 10.6 1.5 7.7
6.0 21.8 9.0 1.8 11.0 5.6 3.8 6.6 2.0 5.9 2.9 2.4 3.6 1.8 1.0 1.0 1.3 1.3 1.6 0.6 19.5 110
Sources: Australian Bureau of Statistics Cat No. 5368.0 International Trade in Goods and Services, Australia, Table 14a; Austrade
In addition to merchandise trade, Australia exported A$53 billion worth of services in the fiscal year 2009-10, with travel (including business and personal education-related services) contributing A$33.4 billion, or over 60 per cent of Australias services exports. The Australian Government also assists Australian businesses with trade finance solutions through the Export Finance & Insurance Corporation (EFIC). In fiscal year 2010, EFIC provided financing facilities totalling A$971.3 million that supported export contracts and overseas investments of over A$5.9 billion.43 Export Finance Navigator for SMEs lists the following banks with specialist trade finance teams44 in Australia:
Australia and New Zealand Bank Bank of Queensland Bendigo Bank Commonwealth Bank of Australia HSBC National Australia Bank Westpac
43. Export Finance & Insurance Corporation (EFIC) http://www.efic.gov.au/Pages/homepage.aspx 44. Export Finance Navigator http://www.exportfinance.gov.au/Pages/Preparingforexport.aspx
> 29
Corporate Finance and Advisory

Mergers and Acquisitions Mergers and Acquisitions (M&A) activity improved in 2010 as the world economy recovered from the global financial crisis, according to the Thomson Reuters Full Year 2010 M&A Financial Advisory Review. The value of global-announced M&A totalled US$2.4 trillion in 2010, up 22.9 per cent from 2009. Australias M&A announced value reached US$132 billion in 2010, a 140 per cent increase from 2009. The rebound in Australias M&A activity last year was largely driven by the mining, financial, energy and telecommunications sectors. In the Asia-Pacific region M&A activity is heavily concentrated in the top three economies (Australia, China and Japan). Together, their announced deals were worth around US$347 billionaccounting for more than 60 per cent of the regions total. Of the top ten financial advisors in Australia, based on completed M&A by imputed fees, nine are foreign-based global investment houses and one is the Australia-based Macquarie Group. They together generated US$648 million in imputed fees in 2010, accounting for 43 per cent of Australias M&A advisory fees. On a five-year total basis, Australian M&A activity has been significant with announced deals totalling US$528 billion. The total value of the Australian deals was the largest in the Asia-Pacific region. Australian activity represents around 3.5 per cent of global deal flow and more than one-fifth of that of the Asia-Pacific region. Australia has a vibrant Private Equity (PE) market, raising A$17 billion over the five years to June 2010. International and domestic PE leveraged buyouts continue to contribute significantly to M&A activities. The largest PE deal for 2010 was the A$2.7 billion45 buyout of Australias second largest private hospital owner and pathology provider, Healthscope.
Worldwide Announced Mergers & Acquisitions Financial Advisors
2010 Rank Market Value Share US$Bn % Worldwide Americas USA Brazil Canada Europe UK Asia-Pacific Australia Japan China Africa/Middle East 2,434.2 1,136.3 821.6 104.2 99.6 641.0 162.9 565.9 131.7 83.9 131.1 91.0 100.0 46.7 33.8 4.3 4.1 26.3 6.7 23.2 5.4 3.4 5.4 3.7
2009 Rank Market Value Share US$Bn % 1,980.3 921.7 719.4 65.4 95.9 581.0 160.0 428.4 54.8 104.9 108.7 49.3 100.0 46.5 36.3 3.3 4.8 29.3 8.1 21.6 2.8 5.3 5.5 2.5
2008 Rank Market Value Share US$Bn % 2,887.0 1,156.4 923.8 93.1 85.5 1,168.7 269.0 512.2 90.2 77.0 113.6 49.7 100.0 40.1 32.0 3.2 3.0 40.5 9.3 17.7 3.1 2.7 3.9 1.7
2007 Rank Market Value Share US$Bn % 4,169.1 1,890.4 1,570.8 46.0 197.6 1,592.6 387.1 596.6 136.5 136.4 75.4 89.5 100.0 45.3 37.7 1.1 4.7 38.2 9.3 14.3 3.3 3.3 1.8 2.1
2006 Rank Market Value Share US$Bn % 3,609.9 1,762.9 1,475.2 33.6 162.1 1,325.2 333.8 458.5 114.5 101.3 46.7 63.4 100.0 48.8 40.9 0.9 4.5 36.7 9.2 12.7 3.2 2.8 1.3 1.8
2006-2010 Rank Market Value Share US$Bn % 15,080.6 6,867.7 5,510.8 342.2 640.8 5,308.4 1,312.8 2,561.5 527.7 503.4 475.6 342.9 100.0 45.5 36.5 2.3 4.2 35.2 8.7 17.0 3.5 3.3 3.2 2.3
Sources: Thomson Reuters Mergers & Acquisitions Financial Advisors, Full Year 2010, Fourth Quarter 2009, Fourth Quarter 2008 and Fourth Quarter 2007; Austrade
Equity Capital Markets Australia has a large and liquid equities market. During the financial crisis in 2008-09, Australias equity capital market provided support for corporations seeking capital off-setting, in part, the disruption experienced in international debt markets. Total equity market raisings46 increased by 7.5 per cent during this period with secondary market raisings rising 74 per cent from A$50.6 billion to A$88.1 billion. Many companies raised equity through rights issues and placements to strengthen their balance sheets and meet the short fall from debt markets at this time.
45. Enterprise Value at time of announced deal, 19th July 2010. 46. Includes Rights Issues, placements, calls on contributing shares, exercise of options, employee share schemes, DRPs, SPPs.
New Capital Raisings for Cash in Australia (A$ Million)
Survey Year 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 CAGR %
Primary Raisings IPOs Privatisations 6,939 8,519 2,857 5,961 12,753 14,883 23,108 19,694 11,003 1,885 11,459 5.1 9,706 6,400 200 0 0 0 0 8,679 0 0 0
Secondary Raisings Rights Issues Placements 4,587 549 992 2,446 8,753 3,242 2,468 13,001 12,449 28,506 23,182 17.6 9,024 4,293 5,310 7,032 7,640 7,896 12,817 19,789 20,920 38,235 23,118 9.9
Other1 6,613 5,748 6,758 7,608 9,487 11,125 13,041 16,742 17,271 21,338 18,785 11.0
Total 36,869 25,509 16,117 23,047 38,633 37,146 51,434 77,905 61,643 89,964 76,544 7.6
% of Average Market Capitalisation 5.9 3.7 2.2 3.4 5.0 4.1 4.7 5.6 4.3 7.5 5.6
1. Other includes Calls on Contributing Shares, Exercise of Options, Employee Share Schemes, Dividend Reinvestment, Prospectus, SPP. Sources: AFMA Australian Financial Markets Report; Austrade
With 2,072 listed companies, the Australian stock market is the second largest free-floating stock market in Asia-Pacific after Japan at US$1,148 billion.
Size of Key Stock Markets in the Asia-Pacific Region Market Capitalisation of Floating Captals (US$ Billion, 31 Dec 2010)
1,400
1,200
1,148 USA Japan UK Canada France Germany 718 638 14,187 2,856 2,675 1,578 1,160 999
1,000
US$ Billion 806
800
600
472 446
400
245
200
125
110
84
38
20
Australia
China
South Korea
Taiwan
Hong Kong
India
Singapore
Malaysia Indonesia Thailand Philippines
New Zealand
Sources: Standard & Poors, Global Broad Market Index, Dec 2010; Austrade
> 31
Corporate advisory services are provided by way of arranging and underwriting new equity securities for domestically domiciled corporations from the private and public sectors. A large portion of equity is raised in the secondary market through rights issues (or entitlement offers) and institutional placements. Over the past three years, secondary market issuance far exceeded primary market issuance as listed companies recapitalised and paid down debt. Commentators expect primary issuance to increase as the market outlook improves. Over the five years, Australias equity capital market raised almost US$200 billion, representing 5.1 per cent of the global equity raisings of US$3.9 trillion. Global Equity Capital Markets Equity and Equity-Related1
2010 2009 2008 2007 2006 2006-2010 Proceeds Market Proceeds Market Proceeds Market Proceeds Market Proceeds Market Proceeds Market (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % USA Europe, Middle East & Africa2 200.9 179.6 23.5 21.0 35.9 6.8 3.4 6.0 249.1 268.7 165.7 64.3 58.9 30.5 872.7 28.5 30.8 19.0 7.4 6.8 3.5 238.2 214.8 79.0 15.1 40.1 24.2 631.3 37.7 34.0 12.5 2.4 6.4 3.8 227.1 345.2 159.5 25.4 36.7 49.4 815.5 27.8 42.3 19.6 3.1 4.5 6.1 208.1 228.9 141.9 68.0 34.5 17.8 719.5 28.9 31.8 19.7 9.5 4.8 2.5 1,123.4 1,237.2 852.7 231.1 199.4 173.5 3,893.1 28.9 31.8 21.9 5.9 5.1 4.5
Asia Pacific 306.6 (ex Japan & Australia) Japan Australia Latin America Global Total
2
58.3 29.1 51.6 854.2
1. Including Intial Public Offerings, Secondary Offerings and Convertible Offerings. 2. The regional total for Europe, Middle East & Africa in 2007 include Rights Offers that are not included in other regional sub-totals or the Global total. Sources: Thomson Reuters Global Equity Capital Markets, Full Year 2010, Fourth Quarter 2009, Fourth Quarter 2008 and Fourth Quarter 2007; Austrade
All ten of the worlds largest arrangers operates in the Australian equity capital markets. In 2010, A$29.1 billion equity was raised with estimated imputed fees of A$756 million.47
Australian Equity Capital Markets
Jan 1 2010 Dec 31 2010 Bookrunner UBS Bank of America Merrill Lynch Credit Suisse RBS JP Morgan Goldman Sachs & Co Macquarie Group Morgan Stanley Citi Deutsche Bank AG Top Ten Total Industry Total
2010 Rank 1 2 3 4 5 6 7 8 9 10
Proceeds per Bookrunner (A$Mn) Market Proceeds Share (%) 8,366 3,088 2,393 2,179 2,154 2,144 1,694 1,455 1,094 1,077 25,643 32,056 26.1 9.6 7.5 6.8 6.7 6.7 5.3 4.5 3.4 3.4 80.0 100.0
Imputed Fees (A$Mn) Manager Market Fees Share (%) 144.8 46.8 37.6 56.1 42.0 37.2 49.1 27.2 19.1 22.5 482.4 755.7 19.2 6.2 5.0 7.4 5.6 4.9 6.5 3.6 2.5 3.0 63.8 100.0
Sources: Thomson Reuters, Equity Capital Markets Review, Full Year 2010, Australian Equity Capital Markets; Austrade
47. Thomson Reuters, Equity Capital Markets Review, Full Year 2010.
The Government is progressing towards the introduction of competition to exchange markets in Australia. On 1 August 2010, market supervision for local exchanges transferred to the Australian Securities and Investment Commission (ASIC) and in April 2011, ASIC published new market integrity rules to provide the framework for the introduction of competition in equity exchange markets. These rules are expected to begin on 31 October 2011.48 On 4 May 2011, the Government granted a licence to Chi-X Australia Pty Ltd as an alternative securities exchange. In a joint media release, the Treasurer and Assistant Treasurer said Competition in Australias financial markets is critical to promoting exchange innovation, lowering transaction costs for market participants, leveraging our pool of national superannuation savings, and improving liquidity and access to capital for companies.49
Debt Capital Markets

Debt capital markets include the issuance of bonds by Australian governments and non-government institutions, asset-backed securities and Kangaroo bonds (bonds issued in Australian dollars by non-residents). Australia has US$1.4 trillion debt securities outstanding the regions third largest amount after Japan and China. Australian governments and business issue in both domestic and international markets. Domestic debt market issuance totalled A$116.6 billion50 in 2010 with A$70.3 billion51 issued through offshore markets namely the US, Europe and Japan. International and Domestic Debt Securities Amount Outstanding Residence of Issuer (US$ Billion, June 2010)
3,500
Domestic Securities 24 2843 International Securities
3,000
2,500
US$ Billion
2,000
1,500
531 126 1049 845 30 655 26 5 225 8 201 50 117 51 115 23 106
1,000
USA Japan UK France Germany Italy Canada
25,081 12,457 1,550 2,850 2,411 3,192 1,336
6,177 168 3,500 1,694 1,901 1,001 592
500
205
37 58
9 32
China
Australia
South Korea
India
Malaysia
Taiwan
Thailand
Hong Kong
Singapore Indonesia Philippines
New Zealand
Sources: Bank for International Settlements, Quarterly Review, Dec 2010, Tables 11 and 16A; Austrade
Over the decade to June 2010, non-government debt outstanding more than tripled from around A$400 billion to A$1.3 trillion. Non-government debt securities were more than four times the government debt securities outstanding with the local financial institutions being the largest issuers in these markets.
48. Australian Securities and Investment Commission 10-151MR ASIC ready for market supervision http://www.asic.gov.au/asic/asic.nsf/byheadline/10-151MR+ASIC+rea dy+for+market+supervision?openDocument. ASIC 11-87MR ASIC publishes final competition market integrity rules 29 April 2011 http://144.140.79.138/asic/asic.nsf/ byheadline/11-87MR+ASIC+publishes+final+competition+market+integrity+rules?openDocument 49. Australian Government Treasury Government approves new financial markets competitor 4 May 2011 http://ministers.treasury.gov.au/DisplayDocs. aspx?doc=pressreleases/2011/067.htm&pageID=003&min=brs&Year=&DocType 50. Includes public domestic non-government bonds (including Kangaroo bonds), semi-government bonds and asset backed securities. Does not include The Commonwealth Government of Australias bonds that had gross bond issuance of A$58.4 billion in the year to June 2010. See the AOFM Annual Report http://www.aofm. gov.au/content/publications/reports/AnnualReports/2009-2010/download/AOFM_Annual_Report_2009-10.pdf 51. Australian and New Zealand entities. Source, INSTO League Tables as at 10 January 2011.
> 33
Australias Debt Securities Outstanding (Fiscal year ending June, A$ Billion)

1,800 1,600 1,400 1,200
A$ Billion Non-Government Short Term Non-Government Long Term Non-Government Overseas Government
1,000 800 600 400 200 0
1993 1994 1995 1996
1997
1998 1999 2000 2001
2002 2003 2004 2005 2006 2007 2008 2009 2010
Sources: Reserve Bank of Australia, Statistical Table D4 (data downloaded 30 Sep 2010); Austrade
In 2010, public domestic bond issuances (including self-led deals) in Australia totalled 194 deals valued at A$116.6 billion. By far the majority of these issues were in public domestic non-government bonds, the bulk of which were issued by financial institutions (106 deals valued at A$69.6 billion). This figure also includes 76 Kangaroo bond issues (foreign entity bonds issued through the domestic market in Australian dollars) valued at A$36.1 billion. Public Domestic Bond Issuances including self-led deals 01/01/2010 31/12/2010
Bookrunner Public Domestic non-government Semi-government bonds Public Domestic ABS TOTAL
1. Includes A$36.1 billion Kangaroo bonds. Source: INSTO League Tables as at 10 January 2011
A$m 81,665 13,100 21,785 116,550
Deals 149 10 35 194
Bonds issued onshore totalled A$417 billion at June 2010, of which A$294 billion was issued by locally domiciled entities and A$124 billion issued by non-resident issuers (Kangaroo bonds). Australias financial institutions are the largest issuers of bonds in the local market.
Australias Corporate Bonds Outstanding Issued Onshore1

Banks and Other Financial Corporations 19 24 27 28 35 48 64 78 99 135 172 41.1 24.3 Non-financial corporations 17 23 28 32 33 39 42 48 45 41 41 9.7 8.9 Assetbacked 24 30 42 52 64 79 99 122 112 99 81 19.5 12.8 Non-Residents (Kangaroo Bonds) 9 18 21 20 34 48 81 103 110 103 124 29.7 30.1
A$ Billion Jun-2000 Jun-2001 Jun-2002 Jun-2003 Jun-2004 Jun-2005 Jun-2006 Jun-2007 Jun-2008 Jun-2009 Jun-2010 Share % CAGR % since 2000
Total 70 95 117 132 166 214 286 352 366 378 417 100.0 19.5
1. Long-term non-government securities issued in Australia. Sources: Reserve Bank of Australia, Statistical Table D4 Debt Securities Outstanding; Austrade
Australias major banks were the largest arrangers in 2010 with many foreign banks providing competition in the market. Public Domestic Non-Government Bonds1 including self-led deals 01/01/2010 31/12/2010
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Bookrunner ANZ National Australia Bank Westpac Institutional Bank Commonwealth Bank of Australia UBS RBC Capital Markets TD Securities JPMorgan HSBC Royal Bank of Scotland Deutsche Bank Credit Suisse BNP Paribas Macquarie Group BMO Capital Markets Merrill Lynch Barclays Nomura Nikko SSB RaboBank TOTAL
A$m 14,871 10,663 10,106 9,669 7,896 7,488 5,963 2,971 2,933 2,546 2,392 1,058 1,017 629 350 300 300 238 225 50 81,665
Deals2 53 21 36 35 34 40 34 10 5 12 13 5 5 3 2 1 1 2 1 1 149
1. A$50 million minimum, 1 year minimum. Pricing must be disclosed. All increases eligible. Excludes ASX listed corporate bonds. 2. Bookrunners given equal allocation. Source: INSTO Leagues Table, as at 10 January 2011
> 35
A recent Government review, Australia as a Financial Centre (November 2009),52 found that if Australia is to develop as a leading financial centre that provides liquid and efficient financial services across a broad range of products and asset classes, then a more diversified and liquid bond market should be part of that vision. In May 2010, the Government announced that the Australian Securities and Investment Commission (ASIC) would introduce a class order relief permitting listed entities, within certain parameters, to issue bonds to retail investors using a simplified process.53 The initiatives simplify the disclosure requirements for certain offers of listed vanilla bonds by allowing such offers to be made with reduced disclosure under a short-form prospectus. The measures also allow vanilla bonds to be offered under a two-part prospectus, comprising a base prospectus (which may be used for a number of different offers) and a second part prospectus (which will relate to a particular offer). In December 2010, the Government announced further reforms, including reducing red tape associated with issuing corporate bonds to retail investors, streamlining disclosure requirements and prospectus liability regulations. It will also facilitate the trading of Commonwealth Government Securities on a securities exchange in Australia, as part of its broader agenda to foster a deep and liquid corporate bond market.54 Asset-backed Securities Australias asset-backed securities market has operated for over twenty years and has provided funding for Australian commercial and residential mortgages, credit cards, auto and equipment leases, and other asset-backed securities (ABS). The largest component of this market has been residential mortgage backed securities (RMBS) which represents around 77 per cent of Australian ABS on issue. Worldwide, this market was dramatically affected by the credit crisis. Recent RMBS issuance in Australia has increased from a low of A$9.9 billion in 2008 to A$14.1 billion and A$19.5 billion in 2009 and 2010 respectively. Australian RMBS Issuance $A Equivalent, Annual
60
Onshore
50
Offshore Purchases by the AOFM
40
A$ Billion
30
20
10
0
2000 2001 2002 2003 2004 2005
Year
2006
2007
2008
2009
2010
Sources: The Reserve Bank of Australia, The State of Play in the Securitisation Market, 30 November 2010; Austrade
Commercial banks (both domestic and foreign) are the main arrangers in the local market.
52. Australia as a Financial Centre Report http://www.austrade.gov.au/ArticleDocuments/2792/Investment-Management-Industry-in-Australia.pdf.aspx 53. Australian Securities and Investment Commission MR10-98 Prospectus relief to help corporate bond market http://www.asic.gov.au/asic/asic.nsf/byheadline/MR10-98+Pr ospectus+relief+to+help+corporate+bond+market?openDocument 54. See Australian Government Competitive and Sustainable Banking System report http://www.treasury.gov.au/banking/content/_downloads/competitive_and_sustainable_ banking.pdf
Public Domestic Asset-Backed Securities including self-led deals 01/01/2010 31/12/2010
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13
Bookrunner Westpac Deutsche Bank Macquarie National Australia Bank ANZ Commonwealth Bank of Australia Royal Bank of Scotland JPMorgan Credit Suisse Suncorp Metway Barclays Bank of Scotland Lloyds TSB
A$m 4,788 3,553 3,368 3,231 1,855 1,421 1,181 662 636 533 217 204 136
Deals 15 12 9 13 9 6 4 3 4 1 2 1 1
Source: INSTO Australian League Tables, as at 13 January 2011
Securitisation remains an important funding source for non-bank lenders, regional banks, building societies and credit unions. The Australian Government continues to offer support to this market through the Australian Office of Financial Managements (AOFMs) active buying program of high quality AAA-rated RMBS. In December 2010, the Federal Treasurer announced an additional A$4 billion commitment to the AOFMs purchasing program, taking the total AOFM program to A$20 billion. Since 2008 the AOFM has purchased 74 tranches in 46 RMBS deals totalling A$12.8 billion. As part of the Federal Governments Banking Reforms announced in December 2010, the Treasury will accelerate work on designing structures for the issuance of bullet RMBS. In late 2010, two Australian issuers BankWest and Bendigo Adelaide Bank issued tranches with bullet features. More recently, the Commonwealth Bank of Australia issued a A$3 billion RMBS deal with a soft bullet tranch worth A$525 million. Bullet structures may increase the investor universe to include those who require non-amortising principal repayments. Bullet RMBS could be eligible for inclusion in certain bond market indices opening the market to institutional investors restricted to the securities listed in these indices. Further details on Australias Residential Mortgage Backed Securities Market can be found at Austrades January 2011 publication Securitisation. Australian Residential Mortgage Backed Securities available at http://www.austrade.gov.au/ ArticleDocuments/2792/Data-Alert-110124-RMBS.pdf.aspx
Kangaroo bonds Kangaroo bonds are corporate, semi-government or supranational bonds issued by non-resident entities through A$ markets. The Kangaroo bond market is the fastest growing sector of Australias domestic bond market, having increased considerably since the late 1990s with many non-resident corporations issuing bonds into the market during the decade commencing 2000. Over the ten years to October 2010, Kangaroo bonds outstanding have increased from A$9 billion to almost A$130 billion, a CAGR of 27.7 per cent.
> 37
Kangaroo Bonds1
140
120
Bonds Outstanding A$ Million
100
80
60
40 20
2008
2002
2003
2004
2005
2000
2006
2008
2002
2003
2004
2005
2000
2006
2001
1993
1994
1995
1996
1998
1999
2007
2009
2001
1993
1994
1995
1996
1998
1999
1997
2007
2009
1992
1. Long-Term Non-Government Securities Issued in Australia Non-Residents. Sources: Reserve Bank of Australia, Statistical Table D4 Debt Securities Outstanding
The attractiveness of the market is intrinsically tied to the development of Australias foreign currency swap market. The development of Australias swap market provides competitive pricing for foreign firms to swap currency exposures back into their local currencies. In 2010, a total of A$36.1 billion was issued across 76 transactions. Arrangers included the Australian operations of foreign banks and Australias major banks. Public Domestic Kangaroo Bonds1 including self-led deals 01/01/2010 31/12/2010
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Bookrunner RBC Capital Markets TD Securities UBS Australia and New Zealand Bank Commonwealth Bank of Australia HSBC Westpac Institutional Bank JPMorgan Deutsch Bank Royal Bank of Scotland National Australia Bank BMO Capital Markets Credit Suisse Merrill Lynch Nomura Nikko SSB BNP Paribas RaboBank TOTAL
1. A$50 million minimum, 1 year minimum. Pricing must be disclosed. All increases eligible. 2. Bookrunners given equal allocation. Source: INSTO Australian Financial Markets League Tables
1997
A$m 6,572 5,963 4,558 4,083 3,196 2,433 2,317 2,117 1,942 775 567 350 325 300 238 225 100 50 36,110
Deals2 37 34 24 21 16 4 11 7 11 4 3 2 2 1 2 1 1 1 76
2010
Many Kangaroo bonds have high credit ratings and, as they can be eligible collateral for use by ADIs in repurchase agreements with the RBA, provide extra liquidity to holders of these bonds. The local investors for these bonds include domestic and foreign banks and local fixed-interest fund managers. Non-resident issuers benefit from an alternative funding source in a developed market with strong common law, a developed derivatives market and a fast growing pension funds industry. Austrades publication Investment Management Industry in Australia highlighted that Australias asset allocation to fixed income investments has been maintained at 12-15 per cent over recent years. With superannuation funds projected to continue to grow strongly over the coming decades, the appetite for quality bond issuance in the Australian market place is expected to continue.
Over-the-counter and exchange-traded markets

The 2010 Australian Financial Markets Report, released by the Australian Financial Markets Association (AFMA), shows that Australias annual turnover of over-the-counter and exchanged-traded markets have exceeded A$100 trillion. Aggregate Australian financial markets (over-the-counter (OTC) and exchange-traded) turnover rose 5.4 per cent to almost A$102 trillion in 2009-10, reversing the global financial crisis induced decline (16.3 per cent) of the previous year. The total market turnover in 2009-10 was more than two and half times that of ten years ago, reinforcing the growth in depth and sophistication of Australias financial markets. Australia Financial Markets Annual Turnover
Financial Year Ending June OTC Markets Foreign Exchange Other Exchange Traded Markets Equities Futures All Financial Markets
(A$ Trillion) 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 27.4 15.9 11.4 10.8 0.5 10.3 38.1 30.3 18.2 12.1 11.7 0.6 11.2 42.0 37.9 21.8 16.1 12.2 0.7 11.5 50.2 42.5 26.4 16.2 13.8 0.7 13.1 56.4 53.3 34.1 19.2 17.8 0.9 16.9 71.1 51.7 33.6 18.1 24.1 1.2 22.9 75.7 60.5 41.6 18.9 29.5 1.4 28.0 89.9 70.9 46.9 23.9 39.0 1.8 37.2 109.8 73.0 46.7 26.3 42.3 2.2 40.1 115.3 69.9 44.3 25.6 26.6 1.5 25.1 96.5 66.7 40.3 26.4 35.0 1.9 33.2 101.7
CAGR % since 2000 9.3 9.7 8.7 12.5 14.8 12.4 10.3
% Change on a Year Ago OTC Markets Foreign Exchange Other Exchange Traded Markets Equities Futures All Financial Markets -2.1 -16.7 29.6 2.1 24.9 1.3 -0.9 10.6 14.0 5.7 8.7 18.0 8.2 10.0 25.3 19.9 33.5 4.5 29.5 3.3 19.5 12.2 20.9 0.4 13.0 4.8 13.5 12.4 25.3 29.2 18.9 28.9 17.7 29.5 26.2 -3.1 -1.4 -6.1 35.1 32.1 35.2 6.5 17.0 23.9 4.4 22.5 24.7 22.4 18.8 17.2 12.8 26.9 32.2 24.9 32.6 22.1 3.0 -0.5 10.0 8.6 21.2 7.9 5.0 -4.3 -5.1 -2.7 -37.1 -31.8 -37.3 -16.3
Market Share % 2009-10 -4.6 -9.1 3.1 31.6 24.2 32.0 5.4 65.6 39.6 26.0 34.4 1.8 32.6 100.0
CAGR = Compound Annual Growth Rate. Sources: 2010 Australian Financial Markets Report and various previous year reports; Austrade
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Transaction Services Payments System

The Payments System Board (PSB) of the Reserve Bank of Australia (RBA) oversees the payments system and is responsible for promoting the safety and efficiency of the payments system. Through the Payment Systems (Regulation) Act 1998 and the Payment Systems and Netting Act 1998, the Reserve Bank has a clear mandate to oversee the operation of the payments system. The Australian Payments Clearing Association (APCA) is the Australian payments industrys principal self-regulatory body. It is the primary vehicle for payments industry collaboration with a mandate to manage and develop regulations, procedures, policies, and standards governing payments clearing and settlement within Australia. The sophistication and competitive nature of Australias payments system is reflected in the changing nature of access points to the system. Access to the payments system comes from bank and non-bank (credit union and building society) branches, Bank@Post,55 ATMs and EFTPOS56 terminals. Cash remains the most important payment instrument for small retail transactions and accounts for the highest volume of transactions. Non-cash payments account for most of the value of payments in the Australian economy. It is estimated that approximately A$220 billion57 of non-cash payments are made each business day, equivalent to 20 per cent of GDP. Arrangements for clearing most payment instruments cheques, direct entry payments, ATMs, EFTPOS and high-value payments are coordinated by APCA. Scheme credit and debit cards (MasterCard and Visa) and BPAY are cleared independently of APCA. The Reserve Bank of Australia announced in May 2010 that the Payments System Board is undertaking a strategic review of innovation in the Australian payments system. The objective is to identify areas in which innovation in the Australian payments system may be improved through more effective co-operation between stakeholders and regulators. Further details are available at the RBAs website: http://www.rba.gov.au/media-releases/2010/mr-10-14.html Appendix H outlines further details on Australias Payment and Settlement Systems.
Operations Processing
Outsourcing and offshoring of mid and back office activities undertaken by commercial banks and capital market participants is a key strategy aimed at reducing costs and improving efficiencies. The following table provides an overview of relevant operations functions and products for these firms. Operations currently being carried out in Australia vary by company, reflecting a range of global and national strategies. A 2008 survey of operations heads for 45 commercial banks found that almost 20 per cent of 3,500 operations staff in Australia support activities outside Australia and New Zealand.58 The large Australian domestic banks undertake the bulk of their operations functions in Australia, with some evidence of offshoring to London, Singapore and India. ANZ Bank, for example, has back office operations in Melbourne, Wellington, Bangalore, Fiji, Singapore and Hong Kong, and has recently announced a new centre in Manila. For foreign banks, there is a mix of models, including supporting their Australian and New Zealand operations from Australia, supporting operations for the Asia-Pacific region, and using Australia as a global service centre within a follow-the-sun operations model.
55. Bank@Post (formerly giroPost) provides a limited range of financial services at certain Australia Post offices on behalf of member financial institutions. In June 2010, member institutions comprised Adelaide Bank, Bank of Queensland, BankWest, Bendigo Bank, Citibank, Commonwealth Bank, HSBC Bank Australia, ING Direct, Members Equity, National Australia Bank, St. George Bank, B&E Ltd, GE Capital Finance Australia, Heritage Building Society, IMB Ltd, Maitland Mutual Building Society, RAMS Home Loans, Wide Bay Australia Ltd and 56 credit unions. http://www.rba.gov.au/statistics/tables/xls/c08hist.xls 56. EFTPOS Electronic Funds Transfer at Point of Sale. Payment occurs through hand held terminals at the point of sale through a debit to a customers savings or cheque account with corresponding credit to the merchants account. 57. RBA website, http://www.rba.gov.au/payments-system/about.html 58. Survey of members of the AFMA Operations committee, 2008.
Operations Functions and Products

Operations Functions Staff supporting financial markets product processing Operational Risk Market Risk Credit Risk Nostro Reconciliations & Investigations Accounting Back Office Service Provider Custodial Services Trade Finance Processing Equity Clearing Services Future Clearing Services Stock Broking Other Margin Lending
Source: Invest Australia & AFOA, AFOA Member Survey: Summary Report, September 2006.
Operations Products Money Market Debt Foreign Exchange/OTC Derivatives Futures OTC Interest Rate Derivatives Energy Equities OTC Credit Derivatives Precious & Base Metals OTC Equity Derivatives Managed Funds Agricultural Commodities Real property
Australia is viewed as being best suited for operations related to more complex financial products, such as equities and derivatives, treasury, non-automated confirmations, structured transactions, gold, electricity and carbon trading, over-thecounter transactions, corporate actions, risk management and process renewal and engineering. Key criteria in selecting a location to establish or expand financial service operations include cost of labour, availability of skilled labour with suitable financial services skills, as well as access to a proficient, English speaking and multi-lingual work force. The skilled workforce is seen as Australias greatest strength. Australia has a very highly skilled, multilingual workforce, which ranks favourably across the region and other major financial centres.
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Workforce Skill Base Comparisons

Australia World Competitiveness Yearbook 2010 Rankinga in: Attracting and Retaining University Education Labour Productivity (PPP) Management Education Global Competitiveness Report 2009-10 Rankingb in: Secondary Enrolment Rate Reliance on Professional Management Quality of Scientific Research Institutions Tertiary Enrolment Rate UNDPs Human Development Report 2009 Rankingc in: Human Development Index (HDI) 2 92 134 24 10 23 13 21 1 7 10 13 89 46 35 80 107 30 25 100 73 38 34 66 24 19 15 32 17 8 12 29 43 11 2 6 36 13 4 30 3 7 9 18 16 49 55 46 8 22 58 13 23 23 22 27 13 36 25 40 2 1 21 2 10 10 3 8 39 28 14 29 China India Hong Kong Japan Singapore USA UK
Sources: (a) Institute for Management Development (IMD), Switzerland, IMD World Competitiveness Online 1995-2010 (Updated: May 2010, 58 economies); (b) World Economic Forum, Switzerland and Harvard University, Global Competitiveness Report 2009-10 (133 economies); (c) The United Nations Development Programme (UNDP), Human Development Report 2009 (182 economies), Statistical Annex, Table H; Austrade
Australias major financial centres Sydney and Melbourne also have comparatively high proportions of their populations with tertiary education and employed in financial services. Selected Demographic Comparisons1 Mid Year 2009
(000) Population Labour Force Employed Persons All Industries Finance and Insurance % of Total Employed Persons Universities Total Enrolled Students % of Total Population Melbourne 3,996 2,114 1,979 90 4.5 179 4.5 Sydney 4,504 2,379 2,223 142 6.4 251 5.6 New York City 8,364 3,994 3,609 315 8.7 446 5.3 London 7,754 4,052 3,676 332 9.0 426 5.5 Hong Kong 7,004 3,695 3,504 210 6.0 102 1.5 Singapore 4,988 3,030 2,906 158 5.4 53 1.1
1. For New York City, the closest available figure for population, mid-2008 is used. The latest data available for students is from 2008. State-wide public and private institution students (studying in Australia) data was used for Sydney (New South Wales) and Melbourne (Victoria). For Singapore, data represents 2008 full-time enrolment. For London and Hong Kong, data represents 2008-09 academic year. Sources: AUSTRALIA: Australian Bureau of Statistics (ABS), cat. no. 3101.0, Australian Demographic Statistics, Dec 2009; ABS cat. no. 6291.0.55.001 Labour Force; ABS cat. no. 6291.0.55.003 E03_aug 94 Employed Persons by Sex, Industry, Capital City-Balance of State, Hours Worked; Department of Education, Employment and Workplace Relations; Austrade. USA: US Census Bureau, Population Division, Table 27: Incorporated Places over 100,000 or more Inhabitants in 2008 population; State of New York and U.S. Bureau of Labour Statistics, Quarterly Census of Employment and Wages; U.S. Department of Labour, Bureau of Labour Statistics, Status of the Civilian Labour Force. UK: Office of National Statistics (ONS), Statistical Bulletin, Population Estimates June 2010; ONS Time series Labour Market Statistics 18A Regional Labour Market Summary (data downloaded 28 June 2010); London Development Agency, Mayor of London, The Mayors Economic Development Strategy for London, Table 1: London Higher, HESA Fact sheets, Student numbers in London 2008-09. HONG KONG: Census and Statistics Department, Hong Kong in Figures 2010 Edition, February 2010; Education Bureau. SINGAPORE: Ministry of Manpower (MOM), online Statistics, Labour Force; MOM Research and Statistics Department, Labour Market, Second Quarter 2009 Table 1.1; Statistics Singapore Ministry of Education, Education Factsheet 2009
Complementing the Australian university educated population is vocational and professional training that is focused specifically on financial service operations. For example, TAFE NSW (Technical and Further Education commission) recently launched a training certificate in financial services focused specifically on back office operations.59 In addition, the Australian Financial Markets Association offers a range of professional training courses leading to a financial services operations designation.60
59. TAFE NSW is Australias leading vocational education and training provider and operates through 10 institutions and 130 campuses across the State of New South Wales. http://www.tafensw.edu.au/howex/servlet/Course?Command=GetCourse&CourseNo=11343 60. http://www.afma.com.au/learning/qualifications/opsaccred.html
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Regulation and Tax Environment

This section provides an overview of the regulation of banks and other financial institutions in Australia and summarises the key considerations that are most relevant to a foreign financial institution considering the establishment of an Australian operation (Australias taxation laws are separately considered in the section entitled Taxation). However, a full discussion of all relevant considerations is beyond the scope of this publication and it is necessary to seek independent legal advice in all cases.
Regulation of the financial system

Overview Australias financial regulation framework is based on three separate agencies, operating on functional lines. These regulatory bodies have prime responsibility for maintaining the safety and soundness of financial institutions, protecting consumers, and promoting systemic stability through implementing and administering the regulatory regimes that apply to the financial sector. Specifically:
(a) Australian Prudential Regulation Authority (APRA) is responsible for prudential regulation and supervision of ADIs (including Australian incorporated banks, the Australian branches of foreign banks, building societies and credit unions), as well as life and general insurance companies (including reinsurers and friendly societies) and most participants in the superannuation (retirement savings) industry; (b) Australian Securities and Investment Commission (ASIC) is the corporate, markets and financial services regulator, responsible for market conduct and investor protection; and (c) The Reserve Bank of Australia (RBA) is responsible for monetary policy, overseeing financial system stability and oversight of the payments system.
Responsibility for the day-to-day supervision of financial institutions and markets lies with these individual regulatory bodies. The broad framework for the regulation of the financial sector is determined by the Australian Government, with the involvement of the Federal Treasury and the Council of Financial Regulators (whose membership consists of high-level representatives of the RBA, Federal Treasury, APRA and ASIC). In addition, the Australia Competition and Consumer Commission (ACCC) is responsible for competition policy, with a mandate which extends across the entire economy, including the financial services sector. Further details of the key regulators are set out below. Australian Prudential Regulation Authority APRA is the key prudential regulator for the Australian financial system. APRAs core mission is to establish and enforce prudential standards and practices designed to ensure that, under all reasonable circumstances, financial promises made by the institutions APRA supervises are met within a stable, efficient and competitive financial system. APRA also acts as the national statistical agency for the Australian financial sector and plays a role in preserving the integrity of Australias retirement incomes policy. APRAs risk-based approach is underpinned by supervisory tools developed within the authority to ensure that risks are assessed rigorously and consistently, that critical warning signs are identified early and that our supervisory response is prompt and measured. APRA is provided with strong statutory powers to regulate and intervene in the operations of financial institutions, including:
(a) authorisation or licensing powers, including the power to revoke a supervised entitys authorisation if it fails to meet statutory requirements or prudential standards; (b) powers to make, apply and enforce prudential standards; (c) powers to collect information, to conduct on-site examinations of supervised entities and to require third-party audits; and
(d) powers to act in certain circumstances to protect depositors, policy holders and superannuation fund members and to maintain the stability of the financial system, including powers related to investigating, giving directions and assuming control of supervised entities in difficulty. APRA can appoint a statutory manager to assume full control of an ADI.
APRA has developed a regulatory framework for ADIs under the Banking Act which is based on the banking supervision principles published by the Basel Committee on Banking Supervision. The framework for prudential regulation includes requirements regarding capital adequacy, credit risk, market risk, securitisation, liquidity, credit quality, large exposures, associations with related entities, outsourcing, business continuity management, risk management of credit card activities, audit and related arrangements for prudential reporting, governance and fit and proper management. Australian Securities and Investments Commission ASIC is an independent statutory body that is Australias corporate, markets and financial services regulator. It acts under the Australian Securities and Investments Commission Act 2001 of Australia and administers the Corporations Act 2001 of Australia (Corporations Act), including the provisions governing the operation of companies in Australia, corporate fundraising, financial reporting, takeovers and compulsory buyouts and external administration/insolvency. ASIC has responsibility for the investor protection regime that applies to the provision of financial services in, and into, Australia. The regime includes licensing, conduct and disclosure provisions that apply to financial services providers (including ADIs), as well as product disclosure provisions applicable to financial products. ASIC is responsible for monitoring compliance by market and clearing and settlement facility licensees with the relevant legislative frameworks and the supervision of real time trading on all of Australias domestic licensed markets. ASIC is also responsible for (a) administering the market misconduct provisions of the Corporations Act, which cover market manipulation, insider trading and misleading or deceptive conduct, and (b) national credit regulation which includes licensing of all credit providers and credit service providers. Reserve Bank of Australia The RBA is responsible for maintaining stability of the overall financial system and monetary policy, promoting the safety and efficiency of the payments system (through the PSB), managing the issuance of banknotes, providing banking services for the Australian Government and managing Australias official reserve assets. In exceptional circumstances, the RBA may provide liquidity support to an individual ADI if the institution was solvent and its failure to make payments would have serious implications for the rest of the financial system. In assessing solvency, the RBA would rely on APRAs judgment. The RBA is also responsible for issuing financial stability standards for clearing and settlement facilities and it monitors compliance with those standards. Federal Treasury The Treasury is an executive arm of the Australian Government and focuses primarily on economic policy. Amongst a range of other domestic functions, the Federal Treasury also provides advice on policy processes and reforms for the promotion of a secure financial system, sound corporate practices and safeguarding the public interest in matters such as consumer protection and foreign investment. Australian Competition and Consumer Commission The ACCC has responsibility for competition policy under the Competition and Consumer Act 2010 of Australia (formerly known as the Trade Practices Act), which prohibits anti-competitive arrangements between competitors, such as price fixing, market sharing and boycotts. The ACCCs consumer protection activities complement those of Australian state and territory consumer affairs agencies which administer separate unfair trading legislation. Other regulatory agencies Other primary regulatory agencies and bodies in Australia include the Australian Taxation Office (ATO), the Australian Transaction Reports and Analysis Centre (AUSTRAC), the Privacy Commissioner, and the Foreign Investment Review Board (FIRB).
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Summary of available operating models

Overview Under the Banking Act, an entity must not conduct banking business in Australia without authorisation from APRA. Banking business includes any business that, to any extent, both (a) takes money on deposit (otherwise than as part payment for identified goods or services), and (b) makes advances of money (or conducts certain other financial activities prescribed in the Banking Act). In addition, a person who carries on a financial services business in Australia is required to hold an Australian financial services licence (AFSL) from ASIC or enjoy the benefit of an exemption from requirement to do so. Business is not defined under the Corporations Act, but under the common law business imports notions of system, repetition and continuity and is to be assessed by reference to the activities of the entity as a whole. The applicable AFSL must specifically cover each financial service that a person intends to provide and refer to each specific financial product for which that service is to be provided (see below). An AFSL will also stipulate whether the financial service is to be provided to wholesale clients or both retail and wholesale clients. Australian Credit Licence Under the National Consumer Credit Protection Act 2009 (Cth) all persons that engage in credit activities in Australia are now required to hold an Australian Credit Licence (ACL) from ASIC, or operate as a credit representative of an ACL holder, or enjoy the benefit of an exemption from the requirement to do so. However, the regime only applies to credit provided to individuals predominantly for personal, domestic or household purposes or for investment in residential property. A credit activity includes: providing credit under a credit contract or consumer lease; suggesting or assisting in relation to a particular credit contract or consumer lease; and acting as an intermediary between a lender or lessor and a consumer (in relation to a credit contract or lease). A licensee must comply with disclosure and conduct obligations including, for example, being a member of an external dispute resolution scheme, providing debtors with disclosure documents (such as credit guides) and meeting overarching requirements such as ensuring its credit activities are engaged in efficiently, honestly and fairly, ensure that debtors are not entered into credit contracts that are unsuitable to them, and do not involve conflicts of interest that are disadvantageous to debtors. Available Options In summary, there are four primary options available to a foreign financial institution considering the establishment of an Australian operation: In the case of a foreign bank:
(a) a representative office and then a branch authorised as a foreign ADI. APRA normally requires to a foreign bank considering the establishment of an Australian branch to first open a representative office; or (b) a new Australian-incorporated subsidiary authorised as an ADI.
In the case of a foreign financial institution which is not a bank: (c) a branch operating as a foreign non-bank financial institution (NBFI); or (d) a new Australian-incorporated subsidiary operating as a NBFI.
Other options may be available for specific types of foreign financial institutions (e.g., partnerships, collective investment vehicles, co-operatives, government agencies and international organisations). Insofar as regulatory approvals are concerned, the first two options involve applying to APRA for authorisation as a representative office and/or an ADI and, except in the case of a representative office, are likely to involve applying to ASIC for an AFSL (which can be made contemporaneously with an application to APRA). The third and fourth options will only involve applying to ASIC for an AFSL. Depending on whether regulated credit activities is undertaken, the options will require applying to ASIC or ACL.
Summary of requirements for each option Type of entity Process Comments
A. Representative office
Consent from APRA Consent to use word bank
The activities of the representative office are limited to those set out in APRAs guidelines.61 Required under section 66 of the Banking Act which provides that a person must obtain consent from APRA to assume or use the words bank, banker, banking or cognate expressions in Australia in connection with a financial services business carried on by that person, whether that business is conducted within or outside Australia. Must be authorised as a bank in its home jurisdiction, of substance and high standing, subject to adequate prudential standards consistent with Basel II and have received approval from home regulator to establish representative office. The activities of the representative office must be confined to a pure liaison office. In particular, a representative office cannot grant loans, enter into derivatives, deal in or issue securities or buy or sell foreign exchange see APRAs guidelines. Application to ASIC. ACL or appointment as credit representative required if undertaking credit activities in Australia. There is ASIC Guidance that assists applicants apply for an ACL.62 Must comply with ongoing conduct obligations under the NCCP Act, including responsible lending requirements, and provide ASIC with an Annual Compliance Certificate.
Minimum entry standards
Operating conditions
Register as a foreign company ACL from ASIC
B. Branch as a foreign ADI
Consent from APRA
Application must comply with APRAs guidelines.63 A branch of a foreign ADI is not permitted to accept initial deposits (and other funds) from individuals and non-corporate institutions of less than A$250,000. They can, however, accept deposits and other funds in any amount from incorporated entities, nonresidents and their employees. The branch must also disclose that it is not subject to the depositor protection provisions of the Banking Act. APRA may impose conditions on the operations of a foreign bank branch, especially during the initial phase of operations. Need only comply with some of APRAs prudential standards for foreign bank branch (see following).
61. The guidelines are available at: http://www.apra.gov.au/ADI/upload/APRA_GL_ROFB_032007_ex.pdf. 62. Regulatory Guide 204 Applying for a Credit License is available at: http://www.asic.gov.au/asic/asic.nsf/byheadline/Regulatory+guides?openDocument#rg204. 63. The guidelines are available at: http://www.apra.gov.au/ADI/upload/ADI-Guidelines-11-4-08.pdf.
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Type of entity
Process
Comments
Consent to use the word bank Minimum authorisation criteria
Required under section 66 of the Banking Act. Home jurisdiction requirements must be authorised as a bank in its home jurisdiction, of substance and high standing, subject to adequate prudential standards consistent with Basel II and have received approval from home regulator to establish a branch. Capital not required to maintain endowed capital in Australia, but the foreign ADI must be subject to comparable capital adequacy standards in its home jurisdiction. Ownership subject to limits under the Financial Sector (Shareholdings) Act 1998 of Australia (FSSA). Direct or indirect holdings of 15 per cent of more are subject to a national interest test and must be approved by the Federal Treasurer. Prudential standards must comply with APRAs prudential standards in relation to corporate governance, securitisation and funds management, liquidity, credit quality, large exposures, associations with related entities, outsourcing, business continuity management, risk management, audit and information and prudential reporting (although in some cases only some of the provisions of the prudential standards apply to branches of foreign banks). APRA can also impose additional, entity specific prudential requirements where it believes they are necessary. Business plan applicants must provide APRA with a 3-5 year business plan and APRA will not authorise a foreign bank as an ADI unless the business plan demonstrates that a real and substantial business is to be carried on in Australia. APRA also expects that the vast majority of business undertaken by the foreign bank with Australian customers (excluding nonAustralian operations of such customers) will be undertaken through the branch in Australia, unless there are sound and prudent business reasons for particular businesses or financial accommodation to be provided by branches outside Australia.
Type of entity
Process
Comments
Register as a foreign company AFSL from ASIC
Application to ASIC. Required if the branch proposes providing certain financial services (such as advice) and financial products (such as, dealing in or issuing securities, derivatives, foreign exchange contracts) see below. Audit and other reports must be provided to ASIC on an ongoing basis. There are exemptions from some of the audit obligations where the holder of an AFSL is a foreign ADI where equivalent reports prepared for the overseas regulator of the foreign ADI are lodged with ASIC.
ACL from ASIC
ACL or appointment as credit representative required if undertaking credit activities in Australia. There is ASIC Guidance that assists applicants apply for an ACL. Must comply with ongoing conduct obligations under the NCCP Act, including responsible lending requirements, and provide ASIC with an Annual Compliance Certificate.
C. Locally-incorporated subsidiary as an ADI
Consent from APRA
Application must comply with APRAs guidelines and are subject to the same prudential standards and legislation as local banks. A locally incorporated ADI can undertake all types of banking business. APRA may impose conditions on the operations of a newly established bank, especially during the initial phase of operations.
Consent to use the word bank Minimum authorisation criteria
Required under section 66 of the Banking Act. Home jurisdiction requirements must have received approval from home regulator to establish a local bank subsidiary. Capital a minimum capital base of A$50 million. Locally incorporated ADIs are currently required to maintain at all times a minimum capital ratio of 8 per cent, of which at least half must be made up of a Tier 1 capital (i.e., a minimum Tier 1 capital ratio of 4 per cent). Newly established ADIs may be subject to a higher minimum capital ratio in their formative years, depending on the risk profile of the proposed operations. Ownership subject to limits under the Financial Sector (Shareholdings) Act 1998 of Australia (FSSA). Direct or indirect holdings of 15 per cent of more are subject to a national interest test and must be approved by the Federal Treasurer.
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Type of entity
Process
Comments Prudential standards must comply with all APRAs prudential standards (including in relation to corporate governance, capital adequacy, securitisation and funds management, liquidity, credit quality, large exposures, associations with related entities, outsourcing, business continuity management, risk management, audit and information and prudential reporting). APRA can also impose additional, entity specific prudential requirements where it believes they are necessary. Business plan applicants must provide APRA with a 3-5 year business plan.
Establish subsidiary AFSL from ASIC
Application to ASIC. Required if the ADI proposes providing certain financial services (such as advice) and financial products (such as, dealing in or issuing securities, derivatives, foreign exchange contracts) see below. Audit and other reports must be provided to ASIC on an ongoing basis.
ACL from ASIC
D. Foreign subsidiary branch as a NBFI
Register as a foreign company AFSL from ASIC
Application to ASIC. Required if the branch proposes providing certain financial services (such as advice) and financial products (such as, dealing in or issuing securities, derivatives, foreign exchange contracts) see below. Audit and other reports must be provided to ASIC on an ongoing basis.
ACL from ASIC
Financial requirements for non-ADI holders of an AFSL
In summary, a NBFI holder of an AFSL must, on an ongoing basis, (i) at all times, have positive net assets, (ii) at all times, be solvent (i.e., be able to pay its debts as and when they become due and payable), (iii) have sufficient cash resources to cover the next three months expenses with adequate
Type of entity
Process
Comments cover for contingencies, (iv) if holding client money or properties which equal or exceed A$100,000 in value, have A$50,000 in surplus liquid funds, and (v) if incurring adjusted liabilities or contingent liabilities equal to or exceeding A$100,000 in providing a financial service by entering into transactions with clients, have adjusted surplus liquid funds of between A$50,000 and A$100,000,000 in accordance with ASICs requirements.
Cannot use the word bank
APRA will not grant consent under section 66 of the Banking Act to a NBFI.
E. Locally incorporated subsidiary as a NBFI
Establish subsidiary AFSL from ASIC
Application to ASIC. Required if the NBFI proposes providing certain financial services (such as advice) and financial products (such as, dealing in or issuing securities, derivatives, foreign exchange contracts) see below. Audit and other reports must be provided to ASIC on an ongoing basis.
ACL from ASIC
Financial requirements fo non-ADI holders of an AFSL Cannot use the word bank
As for a foreign subsidiary branch as a NBFI (see above). APRA will not grant consent under section 66 of the Banking Act to a NBFI.
The authorisation and application processes The first step in establishing a representative office, foreign branch or locally incorporated ADI in Australia is to apply to APRA for authorisation to do so and to use the words bank, banker, banking and cognate expressions. There is a no formal application form, but the usual practice is to submit a letter (together with attachments) that satisfy the criteria in the relevant guidelines published by APRA. Usually, the minimum time for APRA to approve an application for a representative office is 3-6 months from submission of an application with all required information attached. The process for authorisation as a branch of a foreign ADI or a locally incorporated ADI is longer and can take up to 12 months (or longer in certain circumstances) from the date the initial application is made to APRA. The process for applying for an AFSL is called eLicensing, which is an electronic licence application process. The process requires an applicant to identify the specific financial services and financial products it wishes to provide and the types of customers to whom these financial services and products are to be provided. A list of the supporting documentation (known as proofs) required will be produced automatically by the eLicensing service on the basis of that information.
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The proofs are designed to demonstrate to ASIC how the applicant meets, or will meet, the AFSL conditions. Generally, the proofs will either be existing documents or a description of systems and processes. The proofs may be both specific to the entity applying for the AFSL or may cover a corporate group. It is not possible to commence the eLicensing process until an Australian entity is established or a foreign branch is registered and an Australian Company Number (ACN) is received from ASIC. On lodging a complete application, ASIC aims to decide whether to grant or vary an AFSL within 28 days of receiving a complete application although can take longer if it involves complex issues or information is incomplete. The process for applying for an ACL can occur by completing and lodging an online application form and paying the applicable application fee. The process is similar to the one outlined above in relation to an AFSL. An applicant is not automatically entitled to a credit licence, but must meet the requirements for a credit license, including being able to comply with the general conduct obligations under the National Credit Act, which aim to ensure that the credit business operates properly; and satisfy the fit and proper person requirements to engage in credit activities.
Australian financial services licences

Introduction As noted above, person who carries on a financial services business in Australia is required to hold an AFSL from ASIC or enjoy the benefit of an exemption from requirement to do so. Although there are numerous exemptions available for particular financial services and/or financial products, there are few exemptions of general application. ASIC has provided a number of class order exemptions of general application for some regulated foreign financial institutions which operate in jurisdictions which have a similar level of investor protection to Australia. These exemptions only permit financial services to provided to wholesale clients (see below), are subject to some other conditions and involve submitting a standard form deed of reliance to ASIC and providing certain information to ASIC every six months. What is a financial service? A person provides a financial service if they engage in certain activities, which include:
(a) providing financial product advice; (b) dealing in a financial product; (c) making a market for a financial product; (d) operating a registered managed investment scheme (i.e., collective investment vehicles); and (e) providing a custodial or depository service.
What is a financial product? Financial product is defined in general terms and there are specific inclusions and exclusions. The general definition is that a financial product is any facility through which a person:
(a) makes a financial investment; (b) manages financial risk; or (c) makes non-cash payments.
This applies even if the facility is acquired for some other purpose. The specific inclusions to the definition of financial product illustrate the wide scope of the concept. Specific inclusions are equity and debt securities, interests in managed investment schemes, derivatives, foreign exchange contracts, most insurance contracts, most superannuation (i.e., pension) products, most deposit taking facilities provided by Australian ADIs and government debenture and bond issues. The specific exclusions to the definition are generally products that are more suitably regulated under some other regime (such as credit facilities and a facility for the exchange and settlement of non cash payments betwen providers of non cash payment facilities).
Loans in Australia can be structured as a credit facility or, for tax reasons, as an issue of debentures (i.e., a type of debt security). If the loan is a bilateral or syndicated credit facility, then there should be no particular licensing requirements as credit facilities are not financial products for the purposes of the AFSL regime. However, if the loan is structured as an issue of debentures, which is a financial product, then it may be necessary for a lender to hold an AFSL. More structured transactions may involve derivatives, foreign exchange contracts (excluding most spot transactions) or other financial products, which will also require the provider of those financial products to hold an AFSL. Retail and wholesale clients An AFSL will also stipulate whether the financial service is to be provided to wholesale clients or both retail and wholesale clients. In summary, a person is a wholesale client if at least one of the following four tests applies (all other persons are retail clients):
(a) a value test: the consideration payable for the investment is at least A$500,000 (or such other amount set by regulation); (b) a business test: the product or service is provided in connection with a business that is not a small business (this normally means at least 20 employees); (c) an individual wealth test: the clients net assets are at least A$2.5 million or income for each of the last two years is at least A$250,000 (or such other amounts set by regulation); and (d) a professional investor (as broadly defined in the Corporations Act) test.
Other considerations
Privacy laws The Privacy Act 1988 of Australia (Privacy Act) requires that personal information must not be collected unless the person concerned either consents or is informed why it is being collected, who will use it, and how the person may access it and correct it, if necessary. Further, the Privacy Act requires that such personal information not be used for a purpose other than that for which it was collected and not be disclosed to anyone else unless the person concerned has consented or the law requires it. Anti-money laundering and similar laws AUSTRAC acts as the regulator for both the Financial Transactions Report Act 1988 of Australia and the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 of Australia. The reporting of financial transactions, including:
(a) cash transactions of A$10,000 or more or the foreign currency equivalent; (b) suspicious transactions; and (c) international funds transfer instructions.
is required, as well as the verification of the identity of persons who are signatories to accounts. Financial institutions are required to establish a compliance plan to ensure that the reporting and other obligations under both Acts are satisfied. New laws to change the way to take security in Australia The Personal Property Securities Act 2009 of Australia (PPSA) commenced on 15 December 2009, but will not apply until a date to be announced in October 2011. Once the PPSA begins to apply, it will have a retroactive effect on security interests and security agreements arising before that time. The PPSA will establish a national system for the registration of security interests in personal property (i.e., all property other than land), whether given by a company or a natural person, together with new rules for the creation, priority and enforcement of security interests in personal property. It will radically alter many long-standing rules relating to title and the taking of security and will result in significant changes to secured transactions and lending practices. It extends the concept of security to capture many transaction not now registrable or considered to be a security interest, such as assignments of receivables, leases of property, title retention arrangements and flawed asset arrangements.
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Taxation
This section summarises the Australian taxation laws that are most likely to apply when a foreign financial institution sets up an Australian operation. However, a full discussion of all relevant issues is beyond the scope of this publication and it is necessary to seek independent tax advice in all cases. Australia has also entered into tax treaties with over forty countries to prevent double taxation and allow co-operation between Australia and overseas authorities in enforcing their respective tax laws. These treaties are commonly referred to as double tax agreements or DTAs and can apply when a foreign financial institution from a relevant country sets up an Australian operation.
Summary
The following table summarises the key Australian tax considerations in relation to each of the alternative business structures that could be adopted when establishing a financial institution in Australia. Type of entity Key tax considerations
1. Representative office Activities limited solely to liaison and marketing activities, and no banking business conducted in Australia.
Taxation of business profits No significant Australian tax issues should generally arise on the basis that:
The foreign bank should not be held to be carrying on business through a permanent establishment in Australia; and The foreign bank should not otherwise be deemed to have a taxable presence in Australia.
Taxation treatment of funding options Not generally applicable. 2. Branch authorised as a foreign ADI Taxation of business profits The Australian taxable income of the branch as a foreign ADI will generally be subject to Australian tax at the ordinary corporate rate (currently 30 per cent). Taxation treatment of funding options The funding of the branch will generally be treated in the following way:
Interest withholding tax (IWT) will generally apply to offshore interbranch funding at the rate of 5 per cent.1 IWT will also generally apply to other offshore funding at the rate of 10 per cent1, subject to relief under an applicable DTA (e.g., exemption for qualifying financial institutions). Exemption from IWT may be available in relation to publicly offered funding from unrelated lenders (commonly referred to as the section 128F exemption).
1. Refer to the proposed reduction in IWT that follows.
Type of entity
Key tax considerations
3. Locally-incorporated subsidiary authorised as an ADI, foreign subsidiary branch operating as a foreign non-bank financial institution (NBFI), or locally incorporated subsidiary operating as a NBFI
Taxation of business profits The Australian taxable income of each entity will generally be subject to Australian tax at the ordinary corporate rate (currently 30 per cent).
Taxation treatment of funding options The funding of each entity will generally be treated in the following way:
IWT will generally apply to offshore funding at the rate of 10 per cent1, subject to relief under an DTA (e.g., exemption for qualifying financial institutions). Exemption from IWT may be available in relation to publicly offered funding from unrelated lenders (commonly referred to as the section 128F exemption).
1. Refer to the proposed reduction in IWT that follows.
Taxation of business profits

The business profits of an Australian branch or an Australian subsidiary of a foreign financial institution will generally be subject to Australian tax at the ordinary corporate rate (currently 30 per cent). The Government has announced that it intends to reduce the corporate tax rate to 29 per cent from the 2013-14 income year. In contrast, a foreign financial institution which merely carries on activities of a preparatory or auxiliary nature in Australia (e.g., through a representational office) will not generally be liable to pay Australian income tax, provided that the activities of the office are limited solely to liaison and marketing activities, and the office does not conduct any banking business in Australia.
Taxation treatment of funding options

When is interest withholding tax payable? A foreign financial institution that has an Australian subsidiary or an Australian branch may be subject to IWT. Broadly, under Australian tax legislation, interest that is paid to a non-resident is generally subject to withholding tax where the payment is made by an Australian resident or a non-resident acting through an Australian permanent establishment (e.g., an Australian branch). No IWT is generally imposed on domestic payments of interest (including payments made to foreign banks which are in receipt of the funds through a permanent establishment in Australia). IWT is imposed at the rate of 10 per cent, but may be reduced depending on the terms of any applicable DTA between Australia and the jurisdiction of the recipient. Exemptions from IWT Australian tax law does provide for a number of exemptions to IWT. These include, where:
interest is paid on publicly offered debentures, non-equity shares, certain other prescribed debt interests and certain syndicated loans (commonly referred to as the section 128F exemption); interest payments qualify for exemption under an applicable DTA (e.g., exemption for qualifying financial institutions); interest is paid by offshore banking units (OBU) in relation to certain borrowings; and the payee is specifically exempt from IWT (e.g., the payee is exempt from tax in both Australia and home country, or the payee is an exempt foreign pension fund).
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The exemptions that are most likely to apply to a foreign financial institution acting through an Australian subsidiary or an Australian branch are outlined below. Exemption for certain publicly offered debentures (section 128F exemption) In broad terms, under Australian taxation law, interest paid on publicly-offered debentures, non-equity shares and prescribed debt instruments is exempt from IWT if the following conditions are met:
(a) the issuer is a company which is a resident of Australia (or a non-resident carrying on business through an Australian branch) when it issues debt instruments and at the time when interest is paid; (b) the debt instruments were issued under an offer which satisfies the public offer test (which is defined under Australian tax legislation); and (c) the issuer does not know, or have reasonable grounds to suspect, that: (i) at the time of issue the debt instruments would be acquired by an associate of the issuer; and (ii) at the time of the payment of interest, the payee is an associate of the issuer.
Additional requirements apply before interest paid on certain syndicated loans will be exempt from IWT. Exemptions under Australias new DTAs The Australian Government has entered into new DTAs (New Treaties) with a number of countries (Specified Countries) which contain certain exemptions from IWT. For example, New Treaties have been concluded with each of Finland, France, Japan, New Zealand, Norway, South Africa, the United Kingdom and the United States. Broadly, an exemption from IWT is available in respect of interest derived by:
(a) the government and certain governmental authorities and agencies of the Specified Country; and (b) a financial institution which is a resident of a Specified Country and which is unrelated to and dealing wholly independently with the payer of interest.64 This includes interest payments to a bank or other entity that derives most of its profits by carrying on a business of raising and providing finance.
Notional borrowing by an Australian branch of a foreign bank Where a foreign bank conducts business in Australia through an Australian branch, special taxation rules will apply in relation to certain financing transactions between the foreign bank (e.g., head office) and its Australian branch. Broadly, where the foreign bank makes an amount available for use by the Australian branch and the amount is recorded in the branchs accounting records as having been provided by the bank to the branch, the law treats the Australian branch and the foreign bank as separate legal entities and the Australian branch is taken to have borrowed the amount from the foreign bank. Where the Australian branch records a payment of interest in respect of this notional borrowing, the notional interest is deemed to have been paid to the foreign bank and the branch and is subject to IWT at the reduced rate of 5 per cent. This special tax treatment does not apply to locally incorporated subsidiaries of a foreign bank. Accordingly, funding transactions between a foreign bank and its Australian subsidiary may still be subject to IWT at the usual rate of 10 per cent. Deductibility of IWT Generally, a branch or subsidiary of a foreign financial institution which pays interest should be entitled to a tax deduction in respect of the interest paid when calculating its Australian taxable income. This deduction should be gross of any IWT imposed on the interest payments. If the payer of interest was required to gross-up payments to the payee, the payer should also be entitled to a tax deduction for the grossed-up amount. No deduction will generally arise to the extent that there is a failure to withhold an amount on account of IWT. Phasing down Australian IWT for financial institutions The Australian Government announced in the 2010-11 Federal Budget that it would phase down the IWT payable by financial institutions on most interest paid on offshore borrowings, including when an Australian subsidiary or an Australian branch of a foreign financial institution pays interest on borrowings from their overseas parent.
64. However, interest paid under a back-to-back loan or an economically equivalent arrangement will not qualify for this exemption.
The following table summarises the current and proposed IWT position:
Future IWT position From 2013-14 From 2014-15 7.5% 2.5% 7.5% Exempt Exempt 10% 5% (aspirational target of zero) Exempt 5% (aspirational target of zero) Exempt Exempt 10%
Type of borrowing Financial institution borrows from a foreign financial institution (where not exempt under a DTA) Foreign bank branch borrows from overseas head office Financial institution borrows from offshore retail deposits (proceeds used and traced to Australian operations) Financial institution borrows in a section 128F compliant manner Offshore banking unit (borrows and on-lends offshore) Financial institution borrows from non-resident retail deposits held in Australia
Source: Treasurers press release number 035/2010 issued on 11 May 2010
Current IWT position 0% 5% 10% Exempt Exempt 10%
Special treatment for offshore banking units Entities that are OBUs are effectively subject to a reduced tax rate of 10 per cent on eligible income (rather than at the general corporate tax rate of 30 per cent) and are not required to pay IWT on certain borrowings. An entity becomes an OBU when its OBU status is declared by the Treasurer in a Gazette notice. Generally, OBU status is generally available for ADIs, state banks, registered life insurance companies, certain dealers in foreign exchange, and funds management companies. A recent report by the Australian Financial Centre Forum Australia as a Financial Centre Forum: Building on our strengths recommended that the Government improve Australias attractiveness as a financial hub by publicising the OBU regime more widely and by simplifying the process for obtaining OBU status. Thin capitalisation Australias thin capitalisation rules seek to limit the amount of debt used to fund Australian operations or investments. In very broad terms, this is achieved by disallowing debt deductions (such as interest payments) that an entity can claim against Australian assessable income where the entity is too thinly capitalised. The thin capitalisation rules are complex and need to be considered on a case-by-case basis; however, they are normally manageable for financial institutions which operate in Australia.
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Useful Links
Primary Regulators Australian Prudential Regulation Authority Australian Securities and Investments Commission Reserve Bank of Australia Australian Government Australian Bureau of Statistics Australian Competition and Consumer Commission Australian Taxation Office Australian Trade Commission Australian Transaction Reports and Analysis Centre Federal Treasury Foreign Investment Review Board Future Fund MoneySmart Other Abacus (credit union and building society industry body) Alternative Investment Management Association Association of Superannuation Funds of Australia Australian Accounting Standards Board Australian Bankers Association Australian Equipment Lessors Association Australian Finance Conference Australian Financial Markets Association Australian Institute of Superannuation Trustees Australian Payments Clearing Association Australian Securities Exchange Australian Securitisation Forum Australian Private Equity & Venture Capital Association Financial Planning Association Financial Services Council Financial Services Institute of Australasia Fund Executives Association Ltd
www.apra.gov.au www.asic.gov.au www.rba.gov.au
www.abs.gov.au www.accc.gov.au www.ato.gov.au www.austrade.gov.au www.austrac.gov.au www.treasury.gov.au www.firb.gov.au www.futurefund.gov.au www.moneysmart.gov.au
www.abacus.org.au www.aima-australia.org www.superannuation.asn.au www.aasb.com.au www.bankers.asn.au www.aela.asn.au www.afc.asn.au www.afma.com.au www.aist.asn.au www.apca.com.au www.asx.com.au www.securitisation.com.au www.avcal.com.au www.fpa.asn.au www.ifsa.com.au www.finsia.com www.feal.asn.au
Appendix A Banking Institutions

Domestic Banks Four Major Banks Australia and New Zealand Banking Group Ltd Commonwealth Bank of Australia National Australia Bank Ltd Westpac Banking Corporation Domestic Banks Other AMP Bank Ltd Bank of Queensland Ltd Bank of Western Australia Ltd Macquarie Bank Ltd Members Equity Bank Pty Ltd Rural Bank Ltd Suncorp-Metway Ltd Foreign Bank Subsidiaries Arab Bank Australia Ltd Bank of China (Australia) Ltd Bank of Cyprus Australia Ltd Beirut Hellenic Bank Ltd Citigroup Pty Ltd HSBC Bank Australia Ltd ING Bank (Australia) Ltd Investec Bank (Australia) Ltd Rabobank Australia Ltd Foreign Bank Representative Offices Agricultural Bank of China Banco Bilbao Vizcaya Argentaria S.A. Banco Santander, S.A. Bank Hapoalim B.M. Bank of Baroda Bank of Communications Co., Ltd. Bank Leumi Le-Israel BM Bank of Valletta p.l.c China Construction Bank Corporation Commerzbank AG Credit Industriel et Commercial National Bank of Greece SA Saxo Bank A/S
65.
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The Bank of Nova Scotia The Peoples Bank of China Union Bank of India Wells Fargo Bank, National Association Foreign Bank Branches Bank of America, National Association Bank of China Ltd Bank of Scotland plc Barclays Capital BNP Paribas China Construction Bank Corporation Citibank, N.A. Credit Suisse AG Deutsche Bank Aktiengessellschaft First Commercial Bank Industrial and Commercial Bank of China Ltd ING Bank N.V JPMorgan Chase Bank, National Association Lloyds TSB Bank plc Mega International Commercial Bank Co., Ltd. Mizuho Corporate Bank, Ltd. Oversea-Chinese Banking Corporation Ltd Rabobank Nederland Royal Bank of Canada Socit Gnrale Standard Chartered Bank State Bank of India State Street Bank and Trust Company Sumitomo Mitsui Banking Corporation Taiwan Business Bank The Bank of New York Mellon The Bank of Tokyo-Mitsubishi UFJ, Ltd The Hongkong and Shanghai Banking Corporation Ltd The Northern Trust Company The Royal Bank of Scotland N.V. The Royal Bank of Scotland PLC The Toronto-Dominion Bank UBS AG United Overseas Bank Ltd WestLB AG
Bendigo and Adelaide Bank Ltd
Bank of Western Australia Ltd is a wholly owned subsidiary of the Commonwealth Bank of Australia.
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Appendix B Credit Unions and Building Societies

Credit Unions Alliance One Credit Union Ltd Allied Members Credit Union Ltd AMP Credit Union Ltd Australian Central Credit Union Ltd Australian Country Credit Union Ltd (trading as Reliance Credit Union) Australian Defence Credit Union Ltd AWA Credit Union Ltd Bananacoast Community Credit Union Ltd Bankstown City Credit Union Ltd Berrima District Credit Union Ltd Big Sky Credit Union Ltd CAPE Credit Union Ltd Central Murray Credit Union Ltd Central West Credit Union Ltd Circle Credit Co-operative Ltd Coastline Credit Union Ltd Collie Miners Credit Union Ltd Community Alliance Credit Union Ltd Community CPS Australia Ltd Community First Credit Union Ltd Country First Credit Union Ltd Credit Union Australia Ltd Credit Union SA Ltd Defence Force Credit Union Ltd Dnister Ukrainian Credit Co-operative Ltd EECU Ltd Electricity Credit Union Ltd Encompass Credit Union Ltd Family First Credit Union Ltd Fire Brigades Employees Credit Union Ltd Fire Service Credit Union Ltd Firefighters & Affiliates Credit Co-operative Ltd First Choice Credit Union Ltd First Option Credit Union Ltd Fitzroy & Carlton Community Credit Co-Operative Ltd Ford Co-operative Credit Society Ltd Gateway Credit Union Ltd Geelong & District Credit Co-operative Society Ltd Goldfields Credit Union Ltd Goulburn Murray Credit Union Co-operative Ltd Heritage Isle Credit Union Ltd Holiday Coast Credit Union Ltd Horizon Credit Union Ltd Hunter United Employees Credit Union Ltd Industries Mutual Credit Union Ltd Intech Credit Union Ltd La Trobe University Credit Union Co-Operative Ltd Laboratories Credit Union Ltd Latvian Australian Credit Co-operative Society Ltd Lithuanian Co-operative Credit Society Talka Ltd Lysaght Credit Union Ltd MacArthur Credit Union Ltd Macquarie Credit Union Ltd Manly Warringah Credit Union Ltd Maritime, Mining & Power Credit Union Ltd MCU Ltd MECU Ltd Melbourne University Credit Union Ltd MemberFirst Credit Union Ltd MyState Financial Ltd New England Credit Union Ltd Newcom Colliery Employees Credit Union Ltd Northern Inland Credit Union Ltd Nova Credit Union Ltd Old Gold Credit Union Co-operative Ltd Orange Credit Union Ltd Phoenix (N.S.W.) Credit Union Ltd Plenty Credit Co-operative Ltd Police & Nurses Credit Society Ltd Police Association Credit Co-operative Ltd Police Credit Union Ltd Pulse Credit Union Ltd Qantas Staff Credit Union Ltd Queensland Country Credit Union Ltd Queensland Police Credit Union Ltd Queensland Professional Credit Union Ltd Queensland Teachers Credit Union Ltd Queenslanders Credit Union Ltd
Railways Credit Union Ltd Resources Credit Union Ltd R.T.A. Staff Credit Union Ltd Select Credit Union Ltd Service One Credit Union Ltd SGE Credit Union Ltd Shell Employees Credit Union Ltd South West Slopes Credit Union Ltd Southern Cross Credit Union Ltd South-West Credit Union Co-Operative Ltd Summerland Credit Union Ltd Sutherland Credit Union Ltd Swan Hill Credit Union Ltd Sydney Credit Union Ltd Tartan Credit Union Ltd Teachers Credit Union Ltd The Broken Hill Community Credit Union Ltd The Capricornian Ltd The Gympie Credit Union Ltd The Police Department Employees Credit Union Ltd The University Credit Society Ltd Traditional Credit Union Ltd TransComm Credit Co-operative Ltd Victoria Teachers Credit Union Ltd Wagga Mutual Credit Union Ltd Warwick Credit Union Ltd WAW Credit Union Co-Operative Ltd Woolworths Employees Credit Union Ltd Wyong Council Credit Union Ltd
Building Societies ABS Building Society Ltd B & E Ltd Greater Building Society Ltd Heritage Building Society Ltd Hume Building Society Ltd IMB Ltd Lifeplan Australia Building Society Ltd Maitland Mutual Building Society Ltd Newcastle Permanent Building Society Ltd The Rock Building Society Ltd Wide Bay Australia Ltd
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Appendix C Foreign Retail Banks in Australia

Bank of China
In 1985, Bank of China recommenced its operations in Australia and has since set up its Australian headquarters in Sydneys York Street and established seven branches in Sydney, Melbourne, Perth and Brisbane. In 2005, Bank of China (Australia) Limited, the Australian subsidiary of Bank of China, was established in Sydney. The bank offers a wide range of corporate and personal banking services in Australia and targets the local Chinese community, Chinese students studying in Australia, Chinese companies investing in Australia, and Australian businesses with trade and investment links to China.
www.bocau.com.au
Citibank
Citibanks presence in Australia extends back to 1971. The organisation was the first foreign bank to be granted a banking license in 1985 and today provides consumer, corporations, governments and institutions a full range of financial products and services. Citi, the parent company of Citibank in Australia, employs approximately 2,300 staff, and services over 1 million customers in Australia. Citibank is one of the largest foreign banks servicing Australias retail banking sector. In Australia, Citibank holds approximately A$6.2 billion in retail deposits, and has more than A$13 billion in loans and advances to households. Citibank is one of the largest credit card issuers in Australia, ranking fifth in terms of credit card loans outstanding, just behind the big four domestic banks.
www.citibank.com.au
HSBC
HSBC operates through a network of 35 branches and offices in Australia. HSBC first entered Australia through the establishment of a finance company in 1965 and obtained a full banking license in 1986. With retail deposits as at September 2010 of approximately A$3.9 billion and A$7.3 billion in loans and advances to households, HSBC is the third largest foreign bank competitor in the retail banking sector. HSBC offers a full range of consumer, commercial and institutional banking services. They target their retail services to highend expatriates and customers with continued links between Asia and Australia.
www.hsbc.com.au
ING DIRECT
ING DIRECT launched in Australia in 1999 and pioneered branchless banking. It has grown to become the fifth largest retail bank in Australia and largest foreign bank competitor in the retail banking sector. ING DIRECT has approximately 1.4 million customers, A$17 billion in retail deposits and A$36.7 billion in loans and advances to the household sector. The bank first entered Australia with an online interest earning savings deposit account. Most recently, ING DIRECT expanded its deposit service offering to include an everyday transaction account Orange Everyday. ING DIRECT also offers home loans and business banking and deposit services. Headquartered in Sydney, ING DIRECT employs some 900 people in Australia.
www.ingdirect.com.au
Rabobank
Rabobank first entered Australia in 1994, through the acquisition of Primary Industry Bank of Australia, which was renamed Rabobank Australia in 2003, the same year Rabo acquired Lend Lease Agro Business in Australia. Rabobank operates through 51 branches throughout Australia and targets primarily the rural and agricultural sector. The bank entered the retail banking space in May 2007 with the launch of its RaboPlus internet bank, which was rebranded RaboDirect in May 2010. RaboDirect offers a range of high interest savings, term deposits and online access to a selection of wholesale managed funds. As at September 2010, Rabobank held A$1.8 billion in retail deposits.
www.rabodirect.com.au
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Appendix D International Expansion of Australias Largest Banks

Australia and New Zealand Bank
ANZ has some 1,346 branches and offices worldwide with operations in Australia, New Zealand, 15 Asian markets (including the Middle East), 12 Pacific countries, Europe (London and Frankfurt) and New York. The focus of its current growth strategy is the Asia-Pacific, with the aim of becoming a super-regional bank increasing its presence in the region to around 20 per cent of earnings by 2012. To achieve this vision, ANZ has been investing significantly in the region, building branch networks in Indonesia, Vietnam and China through a combination of organic growth and strategic acquisition. The bank recently acquired select businesses from Royal Bank of Scotland in Singapore, Taiwan, Indonesia, Philippines and Hong Kong. In China, ANZ has seven branches and sub branches and holds the maximum allowable investments in two significant Chinese banks: Shanghai Rural Commercial Bank and Bank of Tainjin. ANZ anticipates having twenty outlets open by 2013. Its China expansion strategy received a boost when ANZ was granted local incorporation approval in September 2010. This means ANZ can apply for a renminbi licence and will allow the bank to provide domestic retail and business banking services along with foreign currency products to its institutional clients. In Taiwan, the bank has grown from one branch with a small institutional client base in 2008 to a pan-island network of 22 branches serving 1 million clients. In Hong Kong, ANZ has grown from a single branch serving institutional and private banking clients in 2008 to having six branches with full retail, wealth, private banking, institutional and commercial banking capabilities. ANZ is also the leading bank within the Pacific region, with operations in 12 Pacific countries. The bank was granted a universal bank licence in the Philippines in January 2010 and has 28 branches across 11 cities with almost 1,000 employees in Indonesia. In the greater Mekong region (Vietnam, Cambodia and Laos) the banks aim is to become the leading foreign bank. ANZ currently has 11 offices, 100 ANZ branded ATMS and 1,000 shared ATMs, as well as an extensive EFTPOS network and call centre in Vietnam. In Cambodia, ANZ has a 55 per cent owned joint venture with 18 branches, and 124 ATMs serving 90,000 customers; and in Laos, ANZ is the only international bank, with three branches and nine ATMs.
www.anz.com.au
Commonwealth Bank of Australia

The Commonwealth Bank of Australia (CBA) has operations and investments globally; however, the bulk of its international growth initiatives are centred in the Asia-Pacific region, primarily in China, Indonesia, Vietnam and India. The Banks Asian Growth strategy is focused on building long-term growth opportunities in the areas of banking, wealth and insurance/ bancassurance, in emerging markets where there are young and well-educated populations, strong economic growth and strong, cultural and trade linkages with Australia. In Europe, the bank has approximately 100 employees and has had a branch in the UK since 1913. CBA established a second European branch in Malta in 2005, focused primarily on commercial banking solutions in infrastructure and utilities, corporate lending, and asset finance. In North America, the banks New York branch was established in 1977 and focuses on corporate banking activities in infrastructure, natural resources and global market services (foreign exchange, derivatives, commodities, fixed income products, money markets and private placements). In the Asia-Pacific, CBA has operations in China, Hong Kong, Indonesia, Japan, Singapore, Vietnam and India. The banks Indonesian subsidiary employs more than 1600 people and has been operating for more than 14 years. It offers retail banking services and foreign exchange through 84 branches and 100 ATMs across 22 Indonesian cities. CBA established its Ho Chi Minh City branch in 2008 after having had a representative office in Hanoi since 1994. The bank provides retail banking services (savings accounts, loans, money transfers) in Vietnam, as well as some business banking and international trade finance. In 2010, CBA also made a 15 per cent investment in local Vietnamese bank, VIB.
In China, CBA has had representation in Beijing since 1994 and in 2010 opened its first corporate and institutional branch in Shanghai. The bank has a 20 per cent investment in two Chinese city commercial banks (Qilu Bank and Bank of Hangzhou). Also, in 2010, CBA entered into a life insurance joint venture partnership called BoCommLife with Chinas fifth largest bank, Bank of Communications. CBA has been in Hong Kong since 1986 and in Singapore since 1982. In both markets, CBA focuses on servicing multinationals from Australia and New Zealand, Asian institutional clients, and offers private banking services for expatriates and local professionals. The Tokyo branch was established in 1986 and conducts wholesale business activities, CBAs newest international branch was officially opened in Mumbai, India, in August 2010 and is a fully functional commercial banking operation.
www.cba.com.au
Macquarie Group
Australian-headquartered Macquarie Group describes itself as a global provider of banking, financial, advisory, investment and funds management services. The Group has steadily grown its international activities, with a network of more than 70 offices in 28 countries and in recent years has consistently generated more than 50 per cent of its operating income from international sources. As at 31 March 2010, Macquarie had more than 14,600 staff, with approximately 50 per cent of those located offshore, and $A326 billion of assets under management. Macquarie holds a number of leading market positions in the various markets in which it operates. It is a top ten institutional equities broker based on global stock coverage, and has been a top two ranked manager of Hong Kong initial public offerings since 2008, and is ranked in the top five North American physical gas marketers. Macquarie has more than one million retail clients and 200,000 specialist finance and leasing clients worldwide. Macquarie has grown through a mix of organic growth and selective acquisitions. In 2009-10, Macquarie made several North American acquisitions, including Constellations downstream natural gas trading business, Fox-Pitt Kelton Cochran, Caronia Waller, Tristone Capital, Delaware Investments and Blackmont Capital. Macquarie also acquired the cash equities and equity derivatives operations of Sal. Oppenheim in Europe. Organic growth initiatives include the global build-out of the institutional cash equities platform, the expansion of debt capital markets activities into the US and Europe, and the commencement of physical oil trading in Singapore.
www.macquarie.com.au
National Australia Bank

National Australia Bank (NAB) is a financial services organisation comprising nearly 40,000 people, more than 1800 branches and service centres, and more than 450,000 shareholders. NAB provides products, advice and services through the major Australian franchise and businesses in the United Kingdom, New Zealand, the United States and Asia. NABs international strategy has focused more significantly on the New Zealand, UK and US markets. The banks UK franchises, Clydesdale Bank and Yorkshire Bank, provide retail, business and corporate banking services to more than 2.7 million customers across the UK. Its US company, Great Western Bank, has more than 900 employees and services 300,000 customers through 125 branches across seven US States, primarily in the mid-west. Great Western Bank focuses on retail banking, business banking and agribusiness banking. In New Zealand, NAB has BNZ and BNZ Partners who provide retail, business and agribusiness banking and insurance services to more than one million customers across New Zealand. BNZ has pioneered a number of innovative concepts designed to provide customers with a retail, rather than a traditional banking, experience. New concept stores, mobile banking carts and trailers, and Out of the Box packaged customer solutions have all been introduced. National Australia Bank in Asia has banking operations in Hong Kong, Singapore and Japan as well as representative offices in China and India. In China, NAB recently applied for its first branch licence in Shanghai.
www.nab.com.au
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Westpac
Westpacs international operations focus on supporting Australian and New Zealand customers in foreign markets, and providing a gateway for foreign firms and individuals interested in Australia and New Zealand. Westpac Institutional Bank (WIB) delivers a broad range of financial services to commercial, corporate, institutional and government customers either based in, or with interests in, Australia and New Zealand. Westpacs Asian operations are led out of Singapore, where it offers a full suite of private, corporate and institutional banking services. Westpac has a branch licence in Hong Kong, Singapore and Shanghai and representative offices in Beijing, Jakarta and Mumbai. There is an extensive Westpac network throughout the South Pacific with a presence in seven island nations. The bank has twenty branches in Fiji, 16 in Papua New Guinea and smaller number of branches in the Cook Islands, Samoa, Tonga, Soloman Islands and Vanuatu. In Australia, Westpac Retail and Business Banking (WRBB) is responsible for sales, marketing and customer service for around 5 million consumer and SMEs enterprise customers within Australia under the Westpac and RAMS brands. In December 2008, Westpac merged with St.George Bank Limited adding 2.6 million St.George customers to the group. St.George bank now operates as an operating division within the wider multi-branded Westpac Group.
www.westpac.com.au
Appendix E Selected Australian Legal and Accounting/Tax Advisors in Financial Services

Legal Allens Arthur Robinson Allen & Overy Baker & McKenzie Blake Dawson Clayton Utz Corrs Chambers Westgarth DLA Piper Freehills Gadens Gilbert and Tobin Hall and Wilcox Lawyers Henry Davis York Holding Redlich HWL Ebsworth Maddocks Mallesons Stephen Jaques Middletons Minter Ellison Lawyers Norton Rose Accounting/Tax BDO Kendalls Deloitte Ernst & Young Grant Thornton HLB Judd Mann Horwath KPMG Moore Stephens Pitcher Partners PricewaterhouseCoopers PKF WHK Group
www.aar.com.au www.allenovery.com www.bakermckenzie.com www.blakedawson.com www.claytonutz.com www.corrs.com.au www.dlapiper.com www.freehills.com www.gadens.com.au www.gtlaw.com.au www.hallandwilcox.com.au www.hdy.com.au www.holdingredlich.com.au www.hwlebsworth.com.au www.maddocks.com.au www.mallesons.com www.middletons.com.au www.minterellison.com www.nortonrose.com
www.bdo.com.au www.deloitte.com.au www.ey.com www.grantthornton.com.au www.hlb.com.au www.horwath.com.au www.kpmg.com www.moorestephens.com www.pitcher.com.au www.pwc.com www.pkf.com.au www.whk.com.au
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Appendix F Infrastructure Australias Reform and Investment Priorities

Development Category Early Stage Project Area Transforming our cities Project Name Melton Rail Line Duplication and Electrification (VIC, A$1,300m) Sydneys Future Public Transport Network (NSW; n/a) Gold Coast City Rail (SE Qld Mayors; A$2,875m) North-West Sydney to CBD Rail Link (AIS: A$7,000m) Hobart: A World class, Livable, Waterfront City Adaptable and Secure Water Supplies Competitive International Gateways An Innovative Strategy for Tasmania: Focus on food bowl concept Eyre Peninsula Port Proposals Port of Hastings (incl. Peninsule Link rail freight corridor) Port Hedland Inner Harbour Capacity Enhancements Road and Rail Access and Port Upgrades at Bunbury Pilbara Cities National Freight Network Australian Digital Train Control System (ARA) Mount Isa Townsville Rail Corridor Upgrade Bruce Highway Corridor Upgrades Transcontinental Rail Link Mildura to Menindee Total Early Stage Capital Expenditure Real Potential Transforming our cities Brisbane Inner City Rail Capacity Upgrade Melbourne Metro Stage 2 Managed Motorway Proposals Integrating Sydneys Motorway Network Moreton Bay Rail Link Darra-Springfield Rail and Road project Adaptable and Secure Water Supplies A True National Energy Market Water Security Program Tasmanian Water and Sewerage Reform Smart Grid Demonstration Pilot Project Installation of Low Flow Bypasses in the Mount Lofty Ranges
Estimated State Cost (A$m) VIC NSW QLD NSW TAS TAS SA VIC WA WA WA 1,300 n/a 2,875 7,000 90 105 tbc tbc 3,400 756 2,900 20 QLD QLD VIC 788 n/a 400 19,634 QLD VIC NSW, VIC SA, WA NSW QLD QLD ACT TAS ACT SA 14,000 tbc 3,200 n/a 1,100 2,400 551 1,000 150 47
Development Category
Project Area
Project Name Heywood Interconnector Upgrade Mid-West Energy Stage 2
Estimated State Cost (A$m) SA WA QLD TAS VIC VIC WA NSW 80 795 2,890 150 16 260 600 4,000
Competitive International Gateways
Abbot Point Multi Purpose Harbour Bell Bay Intermodal Expansion Project Smart Port ICT Melbourne International Freight Terminal Gateway WA Perth Airport and Freight Access Road Freight Access to Port Botany and Kingsford Smith Airport M5 East
Road Freight Access to Port of QLD 934 Brisbane and Brisbane Airport Port of Brisbane Motorway Upgrade Road Freight Access to Port of Melbourne Westlink VIC Freight Access to Port of Adelaide Northern Connector National Freight Network East West Rail Freight Corridor (ARTC) North South Rail Freight Corridors Eastern Goldfields Railway Freight Gateway Upgrade (WNR) Advanced Train Management System (ARTC) Western Interstate Freight Terminal Green Triangle Freight Transport Project Total Real Potential Capital Expenditure Threshold Transforming our cities South West Rail Link Eastern Busway (Stages 2b and 3) Managed Motorways Proposals SE Qld Northern Link Road Tunnel Competitive International Gateways Oakajee Port (potential equity injection) NSW QLD QLD QLD WA 500 VIC SA/VIC 2,314 340 41,522 2,400 825 782 1,780 4,000 336 tbc 10,123 Melbourne Metro Stage 1 Integrated Transit Corridor Development Route 86 Demonstration, Project National Freight Network Adelaide Rail Freight Goodwood and Torrens Junction Federal Highway Link to Monaro Highway Majura Parkway Pacific Highway Corridor Upgrades A National Broadband Network Total Threshold Capital Expenditure TOTAL ESTIMATED INFRASTRUCTURE PRIORITY PIPELINE CAPITAL COSTS
Abbreviations: Australasian Railways Association (ARA), Australian Rail Track Corporation (ARTC), West Net Rail (WNR). Source: Infrastructure Australia, Getting the fundamentals right for Australias infrastructure priorities, June 2010.
5,000 1,120 n/a
SA
NSW
n/a 75
Darwin Port Expansion (potential equity injection) NT Moorebank Intermodal Terminal Total Threshold Capital Expenditure Ready to Proceed Transforming our cities VIC VIC SA ACT NSW NSW
4,900 28 418 220 6,000 11,566 82,845
National Broadband Network (NBN)
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Appendix G Capital Expenditure in Australias Mining Sector

International demand for Australian natural resources has grown significantly over the past decade and the local industry has responded through increased production capacity. Much of this has depended on expanding infrastructure along the supply chain like railways, ports and pipelines to transport increased mining volumes to market. Large capital projects in infrastructure and production facilities can be seen in the doubling of annual capital expenditure from A$10 billion to A$19.9 billion in the five years to October 2010.66 Currently, there are 72 projects with forecast capital expenditure of A$132.9 billion at an advanced stage (projects committed or under construction) of development the equivalent of 12 per cent of Australian GDP. These projects are spread across commodities and states, although concentrated by value in petroleum (66 per cent), iron ore (13 per cent) and coal (4 per cent). Western Australia represents 70 per cent of these projects, followed by Queensland (21 per cent) and New South Wales (5 per cent).
Committed projects, October 2010
Energy projects State New South Wales Victoria Queensland Western Australia South Australia Tasmania Northern Territory Australia No. Cost (A$m) 3,194 2,611 19,711 65,447 138 345 1,444 92,890 No.
Mineral projects Cost (A$m) 2,050 44 1,990 19,237 242 0 0 23,563
Infrastructure Projects No. Cost (A$m) 1,715 45 3,343 5,922 0 0 0 11,025
Minerals and Energy Processing No. Cost (A$m) 0 65 2,797 2,444 0 150 0 5,456 No.
Total Cost (A$m) 6,959 2,765 27,841 93,050 380 495 1,444 132,934
7 2 6 7 1 1 2 26
2 1 5 15 2 0 0 25
4 1 6 4 0 0 0 15
0 1 3 1 0 1 0 6
13 5 20 27 3 2 2 72
Sources: ABARE, Minerals and energy Major development projects October 2010
There are currently sixteen projects committed or under construction that exceed A$1 billion in capital cost, with six projects costing in-excess of A$5 billion.
66. ABARE-BRS, Minerals and energy major development projects report, October 2010.
Capital Expenditure committed or under construction by inidvidual projects over A$5 billion
Expected Startup 2015 2014 2011 2011 2013 Capital Expenditure2 $43b US$15b (A$16.7b) (BG Groups Share) $12.1b (inc site works for train 2) US$5.65b (A$6.3b) incl. infrastructure) $5.1b (A$5.7b)
Project Gorgon LNG
Company 1 Chevron / Shell / ExxonMobil
Location Barrow Island, WA Gladstone, Qld Carnarvon Basin/ Burrup Peninsula, WA Pilbara, WA 150 km NW of Dampier Carnarvon Basin, WA Cape Preston, WA
Sectors Petroleum Petroleum Petroleum Iron Ore Petroleum
Queensland Curtis LNG project BG Group Pluto (train 1) Rapid Growth Project 5 (RGP5) NWS North Rankin B Woodside Energy BHP Billiton Woodside Energy/ BHP Billiton/BP/Chevron/ Shell/Japan Australia LNG CITIC Pacific Mining
Sino Iron Project
2011
US$5.2b (A$5.8b)
Iron Ore
1. Principal operating companies. 2. Total capital expenditure as reported by the company in current dollars. Includes cost of development, plant and equipment. Sources: ABARE-BRS, Minerals and energy major development projects, October 2010
Further, there are A$248.0 billion of less advanced projects (undergoing feasibility or pre-feasibility). The fifteen largest of these are estimated to cost in-excess of A$2 billion. The largest four projects are in the energy sector. Infrastructure projects directly associated with the Minerals and Energy sector currently stand at 15 with an estimated cost of A$11.0 billion in committed projects, and a further 31 valued at A$27.8 billion in less advanced projects. Committed infrastructure projects include iron ore and coal ports, rail projects and gas pipelines. The largest committed projects include the Cape Lambert A$3.4 billion port expansion in Karratha, W.A. and the A$1.1 billion Connyella to Abbot Point rail expansion in Queensland. The largest of the less advanced infrastructure projects include the A$4.3 billion Oakajee Port Rail and the A$2.1 billion Port Hedland projects. Further information can be found at ABARE-BRS, Minerals and energy major development projects report October 2010 http://adl.brs.gov.au/data/warehouse/pe_abarebrs99001758/MEP_Oct2010_report.pdf
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Appendix H Transaction Services Payments System

Australias payments system represents a unique model of combined government and industry self-regulation.
Regulation
The Payments System Board (PSB) of the Reserve Bank of Australia oversees the payments system and is responsible for promoting the safety and efficiency of the payments system. Through the Payment Systems (Regulation) Act 1998 and the Payment Systems and Netting Act 1998, the Reserve Bank has a clear mandate to oversee the operation of the payments system. The Australian Payments Clearing Association (APCA) is the Australian payments industrys principal self-regulatory body. It is the primary vehicle for payments industry collaboration with a mandate to manage and develop regulations, procedures, policies, and standards governing payments clearing and settlement within Australia.
Payments System Access Points

The sophistication and competitive nature of Australias payments system is reflected in the changing nature of access points to the system. Access to the payments system comes from bank and non-bank (credit union and building society) branches, Bank@Post,67 ATMs and EFTPOS terminals. As at June 2010, banks operated out of 5,544 branches while non-bank branches numbered 1,167.68 While bank branches have been steadily increasing since 2001, non-bank branches have shown a slow decline over the past few years. ATM and EFTPOS terminal numbers grew significantly over the decade to June 2010, with ATM numbers tripling to 28,764 and EFTPOS terminals more than doubling to 712,434.69 Cash Payments Cash remains the most important payment instrument for small retail transactions and accounts for the highest volume of transactions. Automated Teller Machines (ATMs) have facilitated the use of cash by making it more readily available. In 2009, monthly withdraws from ATMs averaged A$12.6 billion,70 or approximately A$575 per person. Non-cash Payments Non-cash payments account for most of the value of payments in the Australian economy. It is estimated that approximately A$22071 billion of non-cash payments are made each business day, equivalent to 20 per cent of GDP. Approximately three-quarters of the value of non-cash transactions are high-value business transactions, which are processed through Australias real-time gross settlement (RTGS) system. The use of debit cards has also grown significantly in recent years. As at 31 August 2010, there were 32.1 million bank accounts that could be accessed by a debit card, and these cards processed some 197 million transactions (purchases and cash-outs) during the month with a total value of A$13 billion.72 Australia was ranked one of the Top Ten in the world in the Economic Intelligence Units Digital Economy Rankings 2010. Australia is a very sophisticated market where ICT companies can successfully develop solutions with global applicability. The country is also the source of a number of distinctive technologies especially in the areas of e-finance, e-health, and e-government.
67. Bank@Post (formerly giroPost) provides a limited range of financial services at certain Australia Post offices on behalf of member financial institutions. In June 2010, member institutions comprised Adelaide Bank, Bank of Queensland, BankWest, Bendigo Bank, Citibank, Commonwealth Bank, HSBC Bank Australia, ING Direct, Members Equity, National Australia Bank, St. George Bank, B&E Ltd, GE Capital Finance Australia, Heritage Building Society, IMB Ltd, Maitland Mutual Building Society, RAMS Home Loans, Wide Bay Australia Ltd and 56 credit unions. http://www.rba.gov.au/statistics/tables/xls/c08hist.xls 68. RBA website, http://www.rba.gov.au/statistics/tables/xls/c08hist.xls 69. RBA website http://www.rba.gov.au/statistics/tables/xls/c08hist.xls 70. RBA website, http://www.rba.gov.au/payments-system/about.html 71. RBA website, http://www.rba.gov.au/payments-system/about.html 72. RBA website, http://www.rba.gov.au/statistics/tables/xls/c05hist.xls
Payment Settlements
Arrangements for clearing most payment instruments cheques, direct entry payments, ATMs, EFTPOS and high-value payments are coordinated by the Australian Payments Clearing Association (APCA), which is a private company owned by banks, building societies and credit unions. Scheme credit and debit cards (MasterCard and Visa) and BPAY are cleared independent of APCA. APCA administers five payments clearing systems covering cheques, direct debit and direct credit payments, EFTPOS and ATMs, high value and bulk cash, and the COIN Infrastructure System. Final settlement of obligations between payments providers is undertaken by entries to the providers Exchange Settlement (ES) accounts at the Reserve Bank. Large-value payments are settled one-by-one on a real-time gross settlement (RTGS) basis, while retail payments are settled as a batch on a deferred net settlement basis. BPAY Launched in 1997, BPAY was a world first single bill payment system that was adopted across the banking sector. Its objectives were to provide a convenient and secure way for consumers to pay bills and a more efficient collection service for billers and financial institutions. More than 170 Australian financial institutions (Authorised Deposit-taking institutions under the Banking Act), covering approximately 90 per cent of the consumer banking market, belong to the scheme. There are more than 18,000 biller codes that accept BPAY and each month 25.7 million bills worth A$19.2 billion are paid using BPAY. More information on BPAY is available at www.bpay.com.au.
Future Trends
In December 2008, APCA released its vision for the evolution of Australias electronic payments systems, entitled Low Value Payments: An Australian Roadmap. The report was based on extensive consultations with industry and lays out a high level vision for low value payments in Australia for 2018. The roadmap focuses on cheque and direct entry systems and sets out a series of industry initiatives, including new connectivity of applications to international standards and standard messaging.73 In May 2010, the Payments System Board announced a strategic review of innovation in the Australian payments system. The objective is to identify areas in which innovation in the Australian payments system could be improved through more effective co-operation between stakeholders and regulators. The Board anticipates finalising its conclusions by the end of 2011.
New Technologies
Mobile Banking/Payments Mobile payments (which include SMS-based stored value services, top ups of mobile accounts and phone bill charges) are at an early stage of adoption in Australia. Most mobile payments are for phone-related products (such as ringtones) or are internet banking payments initiated on a smartphone. Stored Value Cards Stored value cards (also known as rechargeable stored value, smart cards or electronic purses) are cards which store rechargeable value. Such cards come with various characteristics and degrees of sophistication and are being used in Australia primarily in the form of gift cards, telephone cards, and public transport. Take-up of these cards and other SMART card type applications in Australia has been less than in other countries such as the United States. A recent entrant to the Electronic Funds Transfer at Point of Sales (EFTPOS) system is Tyro. Tyro provides an internet based EFTPOS solution for credit, debit and gift card transactions on behalf of Australian merchants. Touch and Go Touch and Go technology (MasterCard Paypass and Visa Paywave) has recently appeared in the Australian market; it allows for the rapid payment of goods and services by simply touching the card against the terminal. A special chip in the debit card is detected by the terminal. It is limited to transactions with a value below $100. While the lack of verification has created concerns about security, the Commonwealth Bank has reported that 25 per cent of eligible transactions at its 15,000 terminals are now processed using this technology.
73. APCA, Low Value Payments: An Australian Roadmap, December 2008. Australias Banking Industry > 73

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