Banking on an increasingly prosperous Australia

The top Australian banks have moved from world minnows to majors in the space of just two years as the global recession has claimed the majority of the world's largest and once safest financial institutions.

Before the financial crisis engulfed the world there were 20 AA-banks. There are now only eight AA-rated banks in the world, and the Australian domestic brand names of Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Australia New Zealand Bank (ANZ) and Westpac amount to half their number.

The robust state of Australia's banking system has been applauded globally and used as a benchmark for regulatory reform.

The majors have strengthened their grip on the business and consumer market, as foreign banks exit Australia and the regional banks battle for survival.

In the deposits market, the top four have 69.8 per cent of household savings and 71.5 per cent of corporate holdings while in lending the majors account for 69.6 per cent of household loans, 71.4 per cent of personal lending and 66.7 per cent of business lending.

The future for the top four, post-crisis, seems to be getting stronger while the smaller fight to stay alive.

Goldman Sachs JBWere's banking analyst Ben Koo said, "We believe that the major banks will strengthen their positions as a result of the global financial crisis. There is evidence of this already when you look at market share they have gained since the crisis began."

"Uncertainty remains around the long-term funding profiles of the regional banks. Compared with the major banks, regional banks' funding is more expensive and they do not have the benefit of scale.

"The global financial crisis and sector consolidation has emphasised the structural differences between the regional and the big four banks. Many of these risks are already reflected in the regional banks' valuation discounts."

The "twin peaks" of regulation in Australia - ASIC and APRA - are considered by most in the industry as having adopted a cautious and conservative, but ultimately the correct, approach to banking supervision.

Mallesons head of market regulation and managing partner Stuart Fuller said the strength and resilience of Australia's banks was the result of the intense level of supervision already under way in this market.

"I think in the regulatory environment, we are going to see more regulation but for what purpose," Mr. Fuller said.

"We have a highly regulated banking market compared to that of the US banking market which is highly unregulated. You can see why the US, Europe and the UK are bringing in more regulation.

"The top four banks are extremely well placed to take advantage and withstand whatever remains of the global financial crisis and to pull out of the end of it in very good shape," Deloitte financial services partner Chris Cass said.

"In terms of regulatory change I think it's going to be more of a tweak. The Australian government is taking a strong leadership position in the G20. From my reading, the government is determined that Australia will play its part where it's appropriate," said Cass.