C – for ACCC

The Australian Consumer & Competition Commission (ACCC) earns a black mark for suggesting foreign banks can compete on retail deposits in Australia.

The ACCC Public Competition Assessment in August 2008 announced its decision not to oppose the Westpac takeover of St George, and within the Competition Analysis section (60) cited ‘… a range of independent competitors will remain in the various retail markets post-acquisition and, in particular, each of the other three major banks and the regional banks’.

This statement is true in part, as the other three big banks boosted combined retail deposit books (excluding Bankwest) by $37 billion or 15% to $244 billion, from August 2008 to September 2009, but the regional banks are just a drop in the retail deposit bucket.

Over the same period, an $11 billion increase or 22% boost to $51 billion was recorded by the combined banks of; AMP Bank, Bank of Queensland, Bendigo & Adelaide, Rural Bank, Macquarie Bank, ME Bank and Suncorp, which is a good result, but these regional banks (sorry Macquarie) hold equivalent to one in ten retail deposits in Australia, and although they can compete on price, they cannot compete on brand safety.

These regional banks combined have less than half the $103 billion held by Westpac, so realistically are not a market share threat.
The ACCC statement continued, ‘Credit unions, building societies, the foreign banks and niche players also compete in the various markets and, in some cases, are particularly strong competitors’.

Partly true, the mutuals (combined credit unions and building societies) definitely add competition to the retail deposit market, holding around $57 billion in deposits, which sits fifth behind the big four banks.

The foreign banks are the sticking point.

ACCC continues, ‘For instance, HSBC and ING Direct are strong competitors for deposit / term products ….’.

HSBC and ING Direct are not strong competitors, here is why.

In August 2008 as the ACCC mulled over the competition suitability, ING Direct had a retail deposit book of $17.4 billion with HSBC $3.9 billion, or combined $21.4 billion and equivalent to 5.0% of the market.

By September 2009, neither bank has been able to compete on brand or price, with the ING Direct book falling $400 million to $16.9 billion and the HSBC dropping $180 million to $3.9 billion, during a period when Australians reduced asset risk and cashed up, pushing total retailed deposits up $74 billion, or 17%, to $498 billion.

ING Direct and HSBC combined retail deposit market share has subsequently fallen to 4.2% by September 2009, quite average for what the ACCC considered as ‘particularly strong competitors’.

Retail deposit market share analysis sourced from the CoreData-brandmanagement November edition of the Australian Cash Report.