Australia still plans to let in foreign banks

Australian banking is set for a shake-up that analysts believe could trim local banks' profits but offer individual and corporate consumers greatly improved service.

Federal Treasurer Paul Keating is expected to announce by year-end which foreign banks will be allowed to compete with local institutions. Australia is now served by three powerful private-enterprise banks, strengthened by mergers and operating coast to coast; a big federal government bank; and banks controlled by various state-level governments.

Two foreign banks, Bank of New Zealand and Banque Nationale de Paris, have limited Australian operations: They were here early this century before restrictions came in. Many other overseas banks have representative offices in Australia for liaison work with clients, but these cannot perform functions such as taking deposits or making loans.

Australia, following government studies of the financial system, was poised to admit foreign banks under a previous government. Some observers expected Prime Minister Bob Hawke to change course when the Labor Party was elected last year, but the party has been pragmatic and pro-business. Deregulation of the financial system and a commitment to let in foreign banks have surprised many analysts.

Local banks, longtime campaigners for less regulation, say they welcome competition. Some analysts note that they could hardly lobby for less regulation and still call for a high level of protection. Australian banks have prepared for competition by offering new consumer services and launching aggressive marketing drives. Still, profits are expected to fall as competition intensifies.

Partnerships with local interests having 50 percent equity probably will be preferred; this generally means a venture with an Australian firm such as an insurance company. There may be exceptions allowing 100 percent foreign ownership if a bank offers extensive services - a big branch network, for example. Firms such as New York's Citibank are hoping pledges to establish big operations will gain them clearance to operate totally foreign-owned banks. Other likely entrants include Britain's Barclays bank, Japan's Bank of Tokyo, and Hong Kong's Hong Kong & Shanghai Banking Corporation.

Mr. Keating, who sees the newcomers helping to improve service through competition, says the banks could be operating here next year.