RETAIL BANKING | Roxanne Uy, Japan

Will Japanese banks succeed in conquering Australia?

Reports say they have plans of getting 10% of the Aussie banking industry - find out what Patrick Winsbury from Moody's thinks.

ABF: Will Japanese banks be successful in opening up in Australia with their plans to get 10% of the banking industry?

Moody’s: Patrick Winsbury, Senior Vice President, Banking Group in Sydney

With increased margins, low credit costs to date and Australia’s major banks less able to compete on price due to higher wholesale funding costs, there does seem to be potential for banks with plentiful and cheap funding to enter the Australian market.

However, I note a number of factors that may slow the rise of new entrants:

  • Currently loan demand is low as households are actively looking to deleverage.
  • The Japanese banks would have to obtain FX swaps to hedge their position, and the cost such hedging is at historic highs. This would reduce their margins.
  • It's unclear how the Australian regulator would view retail lending funded by offshore deposits. For example, the Australian regulator APRA has required other foreign banks looking to conduct retail banking business in Australia to establish domestic subsidiaries (albeit with the primary aim of ring-fencing deposits raised in Australia). And in the mortgage insurance industry it reportedly required new entrants to have all their capital onshore: a more expensive proposition than reinsurance arrangements with the offshore parent. There may therefore be some significant regulatory costs for Japanese banks looking to set up operations in Australia
  • Conversely, it would be interesting to get the Japanese banking team’s perspective on the willingness of the Japanese bank regulator to see Japanese deposits flow offshore, particularly at this juncture with the potential for an increased focus on ring-fencing of deposits by regulators in a post-crisis world.

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