Australian banks sharpen pencils to finance resources development

"The Australian banking system couldn't come within a bull's roar of financing the resources boom or even one of the big projects." So intones Ron Cameron, director of the Australian Bankers Association Research Directorate, summing up the financial challenges facing Australia in the 1980s.

But, Aussie shibboleths aside, the staid Australian banking industry is apparently girding to try. The incentive: Over the next few years the country is expected to pump some $33 billion into capital projects.

The most dramatic evidence of the nation's pin-striped bankers sharpening their pencils for a slice of the bonanza has been a recent spate of mergers by the nation's leading private trading banks.

The moves, coming in the face of possible toe-to-toe competition with foreign banks and fierce rivalry from domestic nonbank institutions, have altered the look of the nation's granite-faced banking system.

Approved by the federal government in mid-June, two shuffles have cut the number of Australian trading banks from six to four. The Bank of New South Wales (the "Wales") has fused with the Commercial Bank of Australia (CBA), while the National Bank has teamed up with the Commercial Banking Company of Sydney.

This also changes the pecking order: The Wales-CBA becomes the largest Australian bank, nudging aside the government-owned Commonwealth Banking Corporation.

The timing of the mergers has brought charges that the government is pre-empting results of a two-year-old inquiry into the nation's financial system , to be released in August or September. That study, headed by businessman Keith Campbell, is expected to recommend that foreign banks be allowed into the country on a limited basis.

Some argue that by approving the mergers now, thus reducing the level of competition, the government almost has to allow overseas banks in just to rekindle the competitive spirit. Australian bankers, for their part, contend they are ready to go to the mat with overseas competitors.

"We are not concerned about the entry of foreign banks in Australia, provided we can compete with them on equal terms," says V. T. Christie, deputy managing director of the Commonwealth Banking Corporation.

Foreign banks already play a formidable role in the country. Sixty-seven hold equity interest in various financial institutions. But only two wholly foreign banks operate in the country -- the Bank of New Zealand and the Banque Nationale de Paris. Both were established there before Australian federation.

A few banks are expected to be let in, but no one is sure under what ground rules. One option would be to limit newcomers to wholesale business, thus limiting their penetration of the market. Another possibility: Open the door to a few but give Australian bankers time to adjust. These bankers have made it clear they would want breathing space.

The government could also decide to christen several new local banks or grant additional rights to other financial institutions (such as savings banks) -- a move that could bring stiff competition in its own right.

The trading banks, while big in Australia, are small by international standards. The newly merged Wales-CBA ranks 78th on the world bank roster. Only one other Australian bank, the Commonwealth Banking Corporation, even shows up in the top 100 (according to 1979 standings).

The mergers have also underscored the political land mines involved in any tinkering with the banking system. The moves drew howls from the opposition Labor which was concerned that the reduced competition would crimp services for small borrowers. Unions were furious. On one sundappled May day, just after the mergers plans were announced, a crowd of shirt-sleeved, placard-toting bank workers marched through downtown Melbourne at high noon. The protest line stretched for almost two blocks.

Further, the shakeout raises the question of what freedoms may lie ahead for the Australian banking industry. Last December the government took some significant steps toward loosening the system, one of the more controlled among the industrial nations.

Speculation is rife over how far the Campbell committee may go in recommending further freedoms, or what the government might in turn accept. The air is thick with expectancy. The banks are rolling up their sleeves and preparing to slug it out as never before. The non-bank institutions are jittery about what their roles might be in a more open system. Foreign banks are poised to jump in.

"It is very much a key time for the industry," says Mr. Cameron. Adds Johannes Juttner, associate economics professor at Sydney's Macquarie University: "We are at the treshold which could see some significant changes in the whole banking structure."