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Australias Banking Industry

Date: May 2011 Disclaimer This publication has been prepared as a general overview of the Banking Industry in Australia and does not constitute and is not intended to constitute financial product advice as defined under the Corporations Act 2001 (Cwth). Nothing in this document should be construed as a recommendation or statement of opinion intended to influence a person in making an investment decision. The information is made available on the strict understanding that the Australian Trade Commission (Austrade) is not providing professional advice. While all care has been taken in the preparation of this publication, Austrade expressly denies liability for any loss or damage of any nature (including but not limited to any errors or omissions) arising out of or connected with reliance on the contents of this publication. Any person relying on this publication does so entirely at their own risk. Austrade strongly recommends that the reader obtain independent professional advice prior to making any investment decision. Austrades role in the promotion of Australian trade includes facilitating engagement by Australian financial services exporters in markets outside Australia. Austrade is not a promoter of any financial services products or investments and does not provide investment advice. Austrade assumes no responsibility however so arising for any company, product or service mentioned in this document, nor for any materials provided in relation to such products, nor for any act or omission of any business connected with such products. Investors should always make their own enquiries as to whether an investment is appropriate for their needs and should consult an independent and licensed advisor.

ContentsExecutive Summary Australias Banking Industry Market Participants Banks Credit Unions Building Societies Non-Deposit-Taking Finance Companies Retail Banking Size and Scope Residential Mortgages Credit Cards Margin Lending Deposits Private Wealth Retirement or Superannuation savings Self-Managed Superannuation Funds Government Reforms Competitive and Sustainable Banking Commercial Banking and Corporate Finance Scope Market Participants Authorised Deposit-taking Institutions Boutique Advisory Firms and Securities Brokers Specialised Finance Companies Commercial Lending Syndicated Debt Project and Infrastructure Finance Trade Finance Corporate Finance and Advisory Mergers and Acquisitions Equity Capital Markets Debt Capital Markets Asset-backed Securities Kangaroo Bonds Over-the-counter and exchange-traded markets Transaction Services Payments System Operations Processing Regulation and Tax Environment Regulation of the financial system Overview Australian Prudential Regulation Authority Australian Securities and Investments Commission Reserve Bank of Australia Federal Treasury Australian Competition and Consumer Commission 5 6 9 9 11 12 12 13 13 14 15 16 16 18 18 18 19 21 21 21 21 21 21 22 25 26 28 30 30 30 33 36 37 39 40 40 44 44 44 44 45 45 45 45 Other regulatory agencies Summary of available operating models Overview Australian Credit Licence Available options Summary of requirements for each option The authorisation and application processes Australian financial services licences Introduction What is a financial service? What is a financial product? Retail and wholesale clients Other considerations Privacy laws Anti-money laundering and similar laws New laws to change the way to take security in Australia Taxation Summary Taxation of business profits Taxation treatment of funding options When is interest withholding tax payable? Exemptions from IWT Notional borrowing by an Australian branch of a foreign bank Deductibility of IWT Phasing down Australian IWT for financial institutions Special treatment for offshore banking units Thin capitalisation Useful Links Appendix A Banking Institutions Appendix B Credit Unions and Building Societies Appendix C Foreign Retail Banks in Australia Appendix D International Expansion of Australias Largest Banks Appendix E Selected Australian Legal and Accounting/Tax Advisors in Financial Services Appendix F Infrastructure Australias Reform and Investment Priorities Appendix G Capital Expenditure in Australias Mining Sector Appendix H Transaction Services Payments System Regulation Payments System Access Points Payment Settlements Future Trends 45 46 46 46 46 47 51 52 52 52 52 53 53 53 53 53 54 54 55 55 55 55 56 56 56 57 57 58 59 60 62 64 67 68 70 72 72 72 73 73

Australias Banking Industry

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Australia ranked fifth amongst the worlds leading financial systems and capital markets in the 2010 World Economic Forum Financial Development report.

Executive SummaryAustralia has a strong, profitable, sophisticated and well regulated banking sector which is welcoming of new entrants and increasingly engaged in regional and global markets.The financial sector is the largest contributor to Australias national output, around 11 per cent of Australian output or A$135 billion of real gross value added in 2010.1 Australia ranked fifth amongst the worlds leading financial systems and capital markets in the 2010 World Economic Forum Financial Development report. Total assets of Australias banks, defined as Authorised Deposittaking Institutions (ADIs)2, were A$2.7 trillion. Australia has four large domestic banks (the four pillars) that provide full service retail and commercial lending to the Australian economy; Australia and New Zealand Bank (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), and Westpac Banking Corporation (WBC). Each has a AA rating (Standard & Poors) with only nine of the top 100 banks globally enjoying a rating of AA or higher.3 Foreign banks4 are also well represented in the Australian market with 20 of Forbes top 25 banking institutions having a presence in Australia. The majority of these foreign competitors are focused on commercial banking and capital market activities, although a number are now significant players in the retail banking market. Australias retail banking sector is relatively concentrated, with twenty one banks providing the bulk of banking services to consumers (12 domestic banks, 9 foreign owned subsidiaries). Consumer lending in Australia totalled A$1.3 trillion as at October 2010, of which the largest component is mortgage lending. While the major Australian banks have dominant market shares across most consumer finance lines, there is also increasing competition from foreign banks and regional Australian banks and competition from non-bank lenders (credit unions, building societies and non-deposit-taking specialist finance companies). Australias payments system has undergone, and continues to undergo, change designed to increase competition and innovation. Australians are early adopters of new technology, as reflected in the significant growth in electronic payments, EFTPOS and ATMs in the country. The commercial banking and corporate finance and advisory sector incorporates a full range of services provided to commercial, corporate, government and institutional sectors. Specialist expertise exists in mining and resources, infrastructure and project finance (including public-private partnerships), agriculture, and property. Competition in this sector includes the major and regional domestic banks, foreign banks, securities brokerage companies, specialised corporate advisory firms, and asset finance companies. Australias commercial and corporate advisory market comprises:

A$620 billion commercial lending market. A sizeable syndicated loans market that has raised US$336 billion over the five years to 2010, equivalent to 2.1 per cent of world issuance. The second largest project finance market in Asia-Pacific after India, with US$14.6 billion worth of deals in 2010, or 15 per cent of the regions total. The second largest free-floating stock market in the Asia-Pacific region, and sixth largest globally, with a capitalisation of US$1.1 trillion and 2,072 listed companies. One of the three largest Mergers and Acquisitions markets in Asia-Pacific, with announced deals totalling US$132 billion in 2010 and US$528 billion for the five years to 2010; 3.5 per cent of globally announced deals. The second largest Equity Capital Market in Asia-Pacific and fifth largest globally, with US$199 billion of equity issuance over the five years to 2010. A securitisation market that has resumed growth following the global financial crisis, with A$19.5 billion in RMBS issuance in 2010, up from A$9.9 billion in 2008. A fast growing Kangaroo bond market that has increased from A$9 billion to A$129 billion bonds outstanding over the ten years to October 2010 a compound annual growth rate of 28 per cent. The worlds seventh largest foreign exchange market with total FX turnover averaging US$192 billion per day in April 2010. The US$/A$ pair being the worlds fourth most traded pair after the Euro, Yen and Pound Sterling. The Asia-Pacifics second largest pension fund industry after Japan, at US$1,261 billion in 2010 and, by some measures the fourth largest globally.

Australias banking sector has sought to leverage the countrys strengths in natural resources, infrastructure, public-private partnerships, property and related capital market activities. Foreign banks operating in Australia have also been attracted by our reputation for product innovation, advanced capital and risk management systems, our highly skilled workforce and our proximity to key regional markets. Decisions have also been influenced by our political stability, strong rule of law, transparent and highly regarded regulatory environment, advanced social and economic infrastructure, and enviable lifestyle.

1. Australian Bureau of Statistics cat no. 5206.0 Australian National Accounts: National Income, Expenditure and Product, Dec 2010 (released 02 Mar 2011), Table 6, Gross Value Added by Industry, chain volume measured. 2. ADIs include banks, credit unions and building societies. 3. Ranked by The Banker, Top 1000 World Banks 2010, 6 July 2010. 4. Includes foreign banks with locally incorporated subsidiaries, a foreign bank branch licence or representative office. Australias Banking Industry >5

Australias Banking IndustryThe financial sector is the largest contributor to Australias national output, generating more than 10 per cent of Australian output or A$135 billion of real gross value added in 2010.5 As at February 2011, total assets of Australias banks,6 stood at A$2.7 trillion accounting for around 56 per cent of the total A$4.9 trillion in financial sector assets. This represents a compound annual growth rate (CAGR) of 13 per cent over the past decade.

Australias Financial Sector Assets September 2010 (A$ Billion)

General Insurance Ofces $134b or 2.7%

Securitisation Vehicles $141.6b or 2.9%

Life ofces, Superannuation Funds & Other Managed Funds $1,707b or 35.0%

Authorised deposit-taking Institutions $2,724b or 55.9%

Registered Financial Corporations $169b or 3.5%

Sources: Reserve Bank of Australia, Statistical Table B1, Assets of Financial Institutions (updated 1 Feb 2011); Austrade

Australia ranks 12th in the world in terms of bank assets as rated by The Banker, Top 1000 World Banks, December 2009. Among 21 countries surveyed by the Asian Bankers 500, Australia has the third largest pool of bank assets in the region after Japan and China. Australias total bank assets accounted for around 240 per cent of the countrys nominal GDP, well above Japan (193), China (178), South Korea (146), India (102), and the regional average (176).

5. Australian Bureau of Statistics cat no. 5206.0 Australian National Accounts: National Income, Expenditure and Product, Dec 2010 (released 02 Mar 2011), Table 6, Gross Value Added by Industry, chain volume measured. 6. Defined as Authorised Deposit-taking Institutions (ADIs), which includes banks, credit unions and building societies.

6 > Australian Trade Commission

The Asian Banker Top 500 BanksRank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Country Japan China Australia India Korea Hong Kong Taiwan Singapore Malaysia Thailand New Zealand Indonesia Vietnam Philippines Pakistan Bangladesh Sri Lanka Macau Myanmar Brunei Cambodia TOTAL Numbers of Banks in AB500 123 103 14 43 13 18 35 4 17 14 8 27 19 15 15 17 6 5 2 1 1 500 Total Assets (US$ Billion) 9,779.7 8,853.4 2,388.6 1,258.9 1,213.5 1,143.0 958.7 488.5 405.2 273.0 230.4 214.6 97.9 97.6 67.0 26.0 17.1 14.3 12.0 1.8 0.9 27,542.1 Regional Market Share % 35.51 32.14 8.67 4.57 4.41 4.15 3.48 1.77 1.47 0.99 0.84 0.78 0.36 0.35 0.24 0.09 0.06 0.05 0.04 0.01 0.00 100.00 Total Assets % of GDP 192.9 177.6 240.2 101.8 145.8 542.8 253.3 268.1 210.0 103.4 195.6 39.8 105.1 60.5 41.4 27.5 40.5 67.4 35.0 17.3 8.3 176.2 2009 GDP (US$ Billion) 5,069 4,985 994 1,237 833 211 379 182 193 264 118 539 93 161 162 95 42 21 34 10 11 15,633

Sources: The Asian Banker 500, Issue 101 October 2010; GDP data was sourced from IMF World Economic Outlook October 2010; Macau GDP was sourced from Statistics and Census Service Macau; Austrade

Australias four major banks are amongst the worlds 100 largest by assets and are four of only nine global banks with a rating of AA or higher by Standard & Poors. Moodys rating for the four major Australian banks is Aa2, with stable outlook (18 May 2011). Worlds 100 Largest Banks Credit Rating3,000Australias four major banks Assets US$ Billion (as of 31 December 2009)

2,500

2,000

1,500

1,000

500

0 AAA AA AAA+ A ABBB+ BBB BBBNR

Sources: This chart was sourced from the Reserve Bank of Australia Financial Stability Report March 2009, page 25, Graph 38, and updated with the 2009 data of banks assets from The Banker 1000 World Banks 2010 and Standard and Poors Credit Ratings (downloaded 27 July 2010) from Bloomberg; Austrade

The top Australian banks are also within the top 25 banking institutions as ranked by Forbes in its April 2010 top 2,000 companies.

7. The Banker, Top 1000 World Banks 2010, 6 July 2010.

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The Forbes Worlds Leading Companies

Rank1 1 3 5 6 7 8 11 17 21 22 29 34 43 44 48 51 52 53 54 59 67 73 79 83 86

Company JPMorgan Chase Bank of America ICBC Banco Santander Wells Fargo HSBC Holdings BNP Paribas China Construction Bank Barclays Bank of China Lloyds Banking Group UniCredit Group Deutsche Bank Credit Suisse BBVA-Banco Bilbao Vizcaya Banco Bradesco Banco do Brasil Royal Bank of Canada Intesa Sanpaolo Commonwealth Bank Westpac Banking Group Crdit Agricole National Australia Bank ANZ Banking Toronto-Dominion Bank

Country USA USA China Spain USA UK France China UK China UK Italy Germany Switzerland Spain Brazil Brazil Canada Italy Australia Australia France Australia Australia Canada

Sales 115.6 150.5 71.9 109.6 98.6 103.7 101.1 59.2 65.9 52.2 106.7 92.2 63.0 50.3 49.3 59.1 56.1 35.4 50.7 31.8 31.2 92.0 32.5 26.9 23.6

Profits 11.7 6.3 16.3 12.3 12.3 5.8 8.4 13.6 15.2 9.5 4.6 5.6 6.9 6.1 6.0 4.6 5.8 3.6 3.6 3.8 3.0 1.6 2.3 2.6 2.9

Assets (US$ Billion) 2,032.0 2,223.3 1,428.5 1,438.7 1,243.7 2,355.8 2,952.2 1,106.2 2,223.0 1,016.3 1,650.8 1,438.9 2,150.6 988.9 760.4 281.4 406.5 608.1 877.7 500.2 519.0 2,227.2 574.4 420.5 517.3

Market Value 166.2 167.6 242.2 107.1 141.7 178.3 86.7 184.3 56.2 147.0 50.3 44.0 39.8 53.9 48.2 54.5 42.8 78.2 44.7 75.1 71.0 34.4 48.8 53.7 55.4

1. Forbes rank according to an equal weighting of sales, profits, assets and market value. Sources: Forbes, The Worlds Leading Companies, April 2010; Austrade

Australia is well positioned as a banking centre in the region, with 20 of Forbes top 25 banking institutions having a presence in Australia. Australia ranked fifth amongst the worlds 57 leading financial systems and capital markets in the World Economic Forum Financial Development Report 2010. In addition to its geographic position in the Asia-Pacific region, close to the worlds fastest growing economies, Australia offers:

A sizeable domestic economy the fourth largest in the Asia-Pacific (after Japan, China and India); A highly skilled and multilingual workforce where 1.4 million Australians speak an Asian language (equivalent to around onethird of Singapores, and one-fifth of Hong Kongs entire population); Advanced business and IT infrastructure; A sophisticated investor base, including the third largest high-net-worth market in the region (after Japan and China); A stable political and economic environment, and an enviable quality of life; Strong and efficient regulatory environment and legal institutions; and Mature and innovative financial markets including: A leading pension fund market with A$1.3 trillion in funds; The fourth largest pool of investment fund assets globally with A$1.8 trillion FUM; The second largest free-floating stock market in the Asia-Pacific with a market capitalisation of US$1.2 trillion; A fast growing and liquid foreign exchange market having grown 12 per cent CAGR since 1998.

8 > Australian Trade Commission

Market ParticipantsBanks, credit unions and building societies known as Authorised Deposit-taking Institutions (ADIs) provide the bulk of banking services to Australian households, businesses and governments and are prudentially regulated by the Australian Prudential Regulation Authority (APRA). Non-deposit taking finance companies also provide competition in selected consumer credit products.

BanksAustralia has a sound, well capitalised banking sector. Its banks are large by global standards, with a strong retail base, highly developed wealth management capabilities, and full service commercial, trade finance and corporate advisory operations reaching out into the region. There are 56 banks operating in Australia (12 domestic banks, 9 foreign subsidiary banks and 35 foreign branch banks) with total resident assets of A$2.4 trillion as 30 September 2010.8 Australias banking sector offers opportunities for new entrants providing innovative products and distribution systems. Australian banks are increasingly looking to export their expertise in retail banking, funds management, private banking and distribution to the region. The four major domestic banks have the largest market shares in the retail and commercial banking sectors: the Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac Banking Corporation (WBC). They accounted for 77.49 per cent of resident assets (A$2.4 trillion) as at September 2010. Other domestic banks accounted for 9.2 per cent, while foreign bank subsidiaries and branches accounted for 13.4 per cent. The largest of the other domestic retail bank competitors are Suncorp-Metway, Macquarie Bank, Bendigo Adelaide Bank and Bank of Queensland. Of the foreign banks with a subsidiary or branch licence, ING, Bank of Scotland, Citigroup, Deutsche Bank and HSBC have the largest presence as measured by Australian banking assets. ING now ranks fifth in retail banking with its innovative, internet based model. Rabobank has built a strong regional footprint drawing on its rural heritage and is now looking to widen its scale of operations. In addition, there are a number of smaller foreign retail banking operations that target specific immigrant groups including the Arab Bank, Bank of China, Bank of Cyprus and Beirut Hellenic Bank.

8. APRA, Monthly Banking Statistics, September 2010 (issued 29 Oct 2010). 9. Includes Bank of Western Australia Ltd (wholly owned subsidiary of the Commonwealth Bank).

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Assets on Australian Books of Individual Banks (A$ Million)

September 2010 Westpac Banking Corporation Commonwealth Bank of Australia National Australia Bank Ltd Australia and New Zealand Banking Group Ltd Four Major Domestic Banks Bank of Western Australia Ltd1 Suncorp-Metway Ltd Macquarie Bank Ltd Bendigo and Adelaide Bank Ltd Bank of Queensland Ltd AMP Bank Ltd Members Equity Bank Pty Ltd Rural Bank Ltd Total Other Domestic Banks ING Bank (Australia) Ltd Citigroup Pty Ltd HSBC Bank Australia Ltd Rabobank Australia Ltd Investec Bank (Australia) Ltd Bank of Cyprus Australia Ltd Arab Bank Australia Ltd Beirut Hellenic Bank Ltd Bank of China (Australia) Ltd Total Foreign-owned Bank Subsidiaries Bank of Scotland plc Citibank, N.A. Deutsche Bank Aktiengessellschaft UBS AG JPMorgan Chase Bank, National Association BNP Paribas Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. The Royal Bank of Scotland Plc The Bank of Tokyo-Mitsubishi UFJ, Ltd The Hongkong and Shanghai Banking Corporation Ltd Top 10 Foreign-owned Bank Branches Other Foreign-owned Bank Branches Total Foreign-owned Bank Branches TOTAL1. BankWest (Bank of Western Australia) is a wholly owned subsidiary of the Commonwealth Bank of Australia. Sources: Australian Prudential Regulation Authority, Monthly Banking Statistics, September 2010 (issued 29 October 2010), Table 1; Austrade

Resident Assets 528,148 515,805 407,793 360,592 1,812,338 70,877 70,813 60,560 41,306 32,901 7,746 6,255 4,126 294,584 46,572 22,449 17,917 11,819 4,580 1,483 1,363 950 472 107,605 25,211 22,402 20,819 16,617 15,057 14,452 13,046 11,828 8,684 8,368 156,484 62,878 219,362 2,433,889

10 > Australian Trade Commission

Credit UnionsCredit unions operate predominately in the retail sector with business driven by deposit taking, consumer credit and housing loan finance. There is also a small proportion of commercially focussed business targeted at small and medium-sized enterprises (SMEs).10 Many credit unions also distribute products in areas such as health insurance, travel and managed funds as a means of providing greater member value. Australias 107 credit unions had total assets as at September 2010 of A$50.6 billion, which represented an increase of 8 per cent over the year.11 This growth was driven predominantly by housing loans, which account for A$33.9 billion (up more than 8.5 per cent over the same period). There are approximately 900 credit union branches around Australia, although New South Wales is home to the bulk of these with 43.3 per cent of all branches. Queensland accounts for the second largest number, with 17 per cent of credit union branches, followed by Victoria with 15.7 per cent.12 The level of concentration in the credit union sector is significant, with the top five credit unions Credit Union Australia Limited, Australian Central Credit Union, Savings & Loans Credit Union (SA) Limited, Police and Nurses Credit Society, and NSW Teachers Credit Union holding an estimated 42.5 per cent of market share in terms of total industry revenue and 41.8 per cent of total industry assets.13 The credit union sector is going through a period of consolidation and has seen a number of mergers and acquisitions over the last five years, driven by the need to achieve further cost savings through economies of scale. The sector has a diverse range of small and large organisations with the largest credit union having in excess of 400,000 members and around A$7.5 billion in assets.Top 5 Credit Unions Market Share (% of Revenue) 19.0 7.0 7.0 5.0 4.5 Assets 2008-09 (A$ Million) 7,690 2,595 3,230 2,403 2,893

Credit Union Australia Ltd Australian Central Credit Union Ltd Savings & Loans Credit Union (SA) Ltd Police and Nurses Credit Society NSW Teachers Credit Union

Sources: Annual Reports, IBISWorld Industry Report K7323, Credit Unions in Australia, November 2010, page 23

A list of Australian authorised credit unions as at August 2010 is provided in Appendix B. More information on this sector is available through ABACUS, the peak body representing mutual financial institutions, at www.abacus.org.au.

10. IBISWorld estimates that approximately 4 per cent of Credit Union business is with the commercial sector. IBISWorld Industry Report K7323, Credit Unions in Australia, November 2010. 11. APRA, Quarterly Credit Union and Building Society Performance, September 2010 (issued 30 November 2010). 12. IBISWorld Industry Report K7323, Credit Unions in Australia, August 2010, page 16. 13. Ibid, page 23.

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Building SocietiesAustralias 11 building societies had total assets as at September 2010 of A$24.6 billion, which represented an increase of 8.7 per cent over the year.14 This growth was driven predominantly by housing loans, which account for A$16.5 billion (up 9.9 per cent over the same period). Similarly to credit unions, the bulk of building society business is in the retail sector, with less than 10 per cent of their activities estimated to be in the commercial sector.15 Building societies tend to target their financing in niche and rural markets that are not adequately covered by the banks.16 They are predominantly located in NSW and Queensland, which are home to an estimated 86 per cent of the industrys establishments. The level of concentration in the building society sector is high, with the top four having around 80 per cent of industry revenue and over 95 per cent of industry assets.17

Top 4 Building Societies Heritage Building Society Limited Newcastle Permanent Building Society Illawarra Mutual Building (IMB) Society Greater Building Society

Market Share (% of Revenue) 25.0 22.0 17.0 15.4

Assets 2008-09 (A$ Million) 7,114 6,303 4,444 4,106

Source: Annual Reports, IBISWorld Industry Report K7322, Building Societies in Australia, August 2010, page 21

A list of Australian authorised building societies as at August 2010 is provided in Appendix B. More information on this sector is available through ABACUS, the peak body representing mutual financial institutions, at www.abacus.org.au.

Non-Deposit-Taking Finance CompaniesNon-deposit-taking finance companies represent another significant group of institutions that service the retail banking sector in Australia. These institutions do not take deposits but have traditionally provided strong competition in consumer lending, such as mortgage lending, credit cards, and asset or lease financing (i.e., motor vehicles, computers, furniture). Examples of non-deposit-taking finance companies in Australia include GE Money, Liberty Financial, Resi, La Trobe Financial Services, AIMS Financial Group, Assured Home Loans, Rate Busters and Home Star. As these institutions do not take deposits, they are not required to hold a banking license. However, once they reach a certain size (total assets exceeding A$5 million), they are generally required to register as a registered finance corporation, for the purposes of the Financial Sector (Collection of Data) Act, 2001. Further information, including a list of registered financial corporations, is available from the APRA website at http://www.apra.gov.au/RFC/Registered-Financial-Corporations.cfm. More information on this sector is available through the Australian Finance Conference at www.afc.asn.au, and the Australian Equipment Lessors Association, at www.aela.asn.au.

14. APRA, Quarterly Credit Union and Building Society Performance, September 2010 (issued 30 November 2010). 15. IBISWorld Industry Report K7322, Building Societies in Australia, August 2010. 16. IBISWorld Industry Report K7322, Building Societies in Australia, August 2010. 17. Ibid. 18. APRA website at www.apra.gov.au/ADI/ADIList.cfm#AOBC

12 > Australian Trade Commission

Retail BankingSize and ScopeConsumer lending in Australia has continued to grow rapidly over the past decade, at a compound annual growth rate (CAGR) of 12.6 per cent although in more recent years this growth rate has slowed to single digits. As at October 2010, total housing and other personal credit from Australias financial intermediaries reached A$1.3 trillion. House lending for owner occupiers and investors accounted for 89 per cent of total consumer credit outstanding. Australias Consumer Credit (Incl. Securitisation) Year End, A$ Billion1,400Mortgage Owner-occupier (13.5%) Mortgage Investor (13.4%) Other personal (7.2%)

1,200

1,000

A$ Billion

800

600

400

200

0Oct-2000 Dec-2000 Dec-2001 Dec-2002 Dec-2003 Dec-2004 Dec-2005Year End

Dec-2006

Dec-2007

Dec-2008

Dec-2009 Oct-2010

Note: The number in the brackets represents compound annual growth rate since 2000. Sources: Reserve Bank of Australia, Statistical Table D2 Lending and Credit Aggregates (Last updated 30 Nov 2010); Austrade

Banks provide the majority of credit to Australian households with a market share of 83 per cent, representing almost A$1.1 trillion as at September 2010. Banks providing deposit-taking services to the household sector are required to be locally incorporated and are prudentially regulated by APRA. There are 12 domestic banks and nine foreign bank subsidiaries in Australia see Appendix A for full list of banks. The table following provides an overview of household loans held by banks as at 30 September 2010. Consumer lending in Australia, defined as loans and advances to households, accounted for 70 per cent of total bank loans and advances. The four major banks accounted for 87 per cent of all household loans, while the other domestic banks accounted for 7.6 per cent, and foreign bank subsidiaries held 5.4 per cent.

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Loans and Advances to Household on Australian Books of Individual Banks (A$ Million)Households Credit Cards 9,397 8,566 5,101 7,965 31,029 1,260 6 267 359 137 2,029 4,586 991 5,577 38,635

September 2010 Westpac Banking Corporation Commonwealth Bank of Australia National Australia Bank Limited Australia and New Zealand Banking Group Ltd Four Major Domestic Banks Bank of Western Australia Ltd1 Suncorp-Metway Ltd Bendigo and Adelaide Bank Ltd Bank of Queensland Ltd Macquarie Bank Ltd AMP Bank Ltd Members Equity Bank Pty Ltd Total Other Domestic Banks ING Bank (Australia) Ltd Citigroup Pty Ltd HSBC Bank Australia Ltd Arab Bank Australia Ltd Bank of China (Australia) Ltd Bank of Cyprus Australia Ltd Beirut Hellenic Bank Ltd Rabobank Australia Ltd Investec Bank (Australia) Ltd Total Foreign-owned Bank Subsidiaries TOTAL

Housing: Owner-occupied 184,755 169,375 101,098 107,614 562,842 29,993 18,304 12,028 9,455 1,167 3,830 2,978 77,755 27,458 4,785 2,910 126 208 167 122 189 16 35,981 676,593

Housing: Investment 82,190 79,166 49,607 41,207 252,170 8,199 8,099 6,792 7,862 585 1,418 769 33,724 9,240 2,442 3,199 116 141 46 222 23 15,429 301,341

Other 15,403 9,754 17,900 13,806 56,863 569 670 2,516 315 4,520 417 144 9,151 1,133 162 143 8 141 1 1,588 67,653

Total 291,745 266,861 173,706 170,592 902,904 40,021 27,079 21,603 17,632 6,631 5,665 4,028 122,659 36,698 12,946 7,262 385 357 354 345 212 16 58,575 1,084,222

1. BankWest (Bank of Western Australia) is a wholly owned subsidiary of the Commonwealth Bank of Australia. Sources: Australian Prudential Regulation Authority, Monthly Banking Statistics, September 2010 (issued 29 October 2010), Table 2; Austrade

Residential MortgagesThe residential mortgage market in Australia is by far the largest category of loans to households, representing 90 per cent of all bank lending to the household sector. Since 2000, bank mortgage loans for owner-occupied and investment properties have increased much faster (13.5 per cent p.a) than other consumer credit (7.2 per cent p.a.). Australian laws place full recourse lending to residential mortgages in Australia at a national level. This has provided homogeneity across the national mortgage market and places greater responsibility for the loan on the borrower than has been the case in some overseas jurisdictions. Australias market is characterised by high levels of Lenders Mortgage Insurance. This is an additional charge, borne by the lender and often passed on to the borrower, which serves to meet any shortfall arising between the proceeds from foreclosure on the collateral (e.g., residential property) and the loan amount. Typically, lenders require such insurance where the borrowers loan to valuation ratio exceeds 80 per cent. Tax laws are favourable towards residential property ownership, with capital gains tax exempt for owner occupiers and discounts of up to 50 per cent available for investors who own for periods greater than 12 months.19 Investors can also offset the interest expenses and property costs against their income, including other income sources. If their property expenses exceed their property income, these expenses can be negatively geared against other personal income sources.

19. Australian Taxation Office http://www.ato.gov.au/

14 > Australian Trade Commission

In July 2010, regulatory oversight for consumer credit protection laws was transferred from the state governments to the federal government under the National Consumer Credit Protection Act 2009. The Act largely replicates the previous statebased Uniform Consumer Credit Code (UCCC). These laws are designed to protect Australian consumers from predatory or unscrupulous lending practices. The emphasis is placed on the provider to ensure that the borrower has the capacity to borrow, is properly informed of their responsibilities and that loans are not written in an unfair or misleading manner. Under these laws, the provider is to access the borrowers capacity to repay; all the repayments, fees and charges associated with the credit provided (including a change in repayments due to the ending of a honeymoon interest rate period). For further information see Regulatory and Tax Environment section.

Credit CardsThe credit card market in Australia has grown steadily over the past decade in terms of number of accounts, transactions and balances outstanding. As at October 2010, there were 14.7 million credit card accounts in Australia, the equivalent of 87 per cent of Australias adult population, with a total balance outstanding of A$48 billion.20 The average outstanding balance is around A$3,200. Australias Credit and Charge Card Statistics (Values and Number, Not Seasonally Adjusted)

60,000

16 14

50,000 12 40,000A$ Million Number of Accounts ('000, RHS)

10Number, millions

30,000

8 6

20,000Balances Outstanding (A$ Million, LHS)

4 2

10,000

0Mar-2008 Sep-2008 Mar-2009 Sep-2002 Sep-2003 Sep-2004 Sep-2005 Sep-2000 Sep-2006 Sep-2001 Sep-2007 Sep-2009 Mar-2002 Mar-2003 Mar-2004 Mar-2005 Mar-2000 Mar-2006 Mar-2001 Mar-2007 Mar-20010 Sep-20010

0

Sources: Reserve Bank of Australia, Statistical Table C1 Credit and Charge Card Statistics (Last updated 30 Nov 2010); Austrade

Credit cards are provided by domestic and foreign banks, credit unions, building societies and some specialised credit card providers. In recent years, some banks have provided white labelling services to other mass market channels such as retailers and airlines. Many of Australias largest retailers, such as Coles, David Jones, Harvey Norman, Myer and Woolworths have credit card offers. Within the banks, the four major banks account for 83.6 per cent21 of total bank credit card loans outstanding, while other domestic banks account for 1.6 per cent, and foreign banks, 14.4 per cent.22 The foreign bank share of the credit card market is dominated by two institutions, Citigroup and HSBC, with Citigroup having the bulk of credit card loans outstanding (around 12 per cent market share), the fifth largest provider after the major domestic banks.

20. Reserve Bank of Australia, Statistical Table C1, Credit and Charge Card Statistics as at October 2010. 21. Includes Bank of Western Australia Ltd (wholly owned subsidiary of the Commonwealth Bank). 22. Australian Prudential Regulation Authority, Monthly Banking Statistics, September 2010 (issued 29 October 2010), Table 2.

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Margin LendingMargin lending has developed as another consumer credit product over the past two decades. Margin lending is borrowing to invest in financial securities typically listed shares or managed funds. Each individual security can be leveraged up to a set loan to value ratio (LVR). If the securities move outside of the allowed valuation limit, borrowers are issued a margin call that requires them to either add cash to their margin account or to sell down existing securities to bring the loan back under the LVR limit. Over the ten years to September 2010, balances outstanding on margin loans grew at 10 per cent (CAGR) to A$17.8 billion. Growth was rapid during the seven years to 2007, but reduced following the global financial crisis. Today, there are 205,000 client accounts. Quarterly statistics published by the Reserve Bank of Australia indicate that the average loan to security valuation is 37.5 per cent, with a mean loan size of A$91,000. Australias Margin Lending (September each year)

40 35 30 25Number of Accounts Margin Lending Credit Outstanding (A$ Billion)

250,000

200,000

150,000 20 15 10 50,000 5 100,000

02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0

Sources: Reserve Bank of Australia, Statistical Table D10; Austrade

DepositsAs at September 2010, total deposits23 (retail and corporate/wholesale) held by banks, credit unions and building societies were A$1,485 billion, significantly up from A$780 billion five years ago. This represents a compound annual growth rate of 13.7 per cent since September 2005. Banks account for 95 per cent of these deposits. The following table provides an overview of household deposits held by banks24 as at 30 September 2010. Deposits sourced from households amounted to $477.8 billion and accounted for 37 per cent of total bank deposits, with the remainder sourced from businesses, governments and institutions. The four major banks accounted for 78.725 per cent of all deposits, while the other domestic banks accounted for 10.4 per cent and foreign banks26 11.0 per cent.

23. Reserve Bank of Australia, statistical tables B3, B7 and B8. 24. The domestic books of a bank has the following scope: includes operations/transactions booked or recorded inside Australia; does not consolidate Australian or offshore controlled entities; includes transactions of Australian-based offshore banking units; excludes transactions of overseas-based offshore banking units; excludes offshore branches; and excludes transactions, assets and liabilities with offshore. 25. Includes Bank of Western Australia Ltd (wholly owned subsidiary of the Commonwealth Bank). 26. Includes foreign owned subsidiary and foreign branch licenced banks.

16 > Australian Trade Commission

Deposits on Australian Books of Individual Banks (A$ Million)

September 2010 Commonwealth Bank of Australia Westpac Banking Corporation National Australia Bank Ltd Australia and New Zealand Banking Group Ltd Four Major Domestic Banks Bank of Western Australia Ltd1 Bendigo and Adelaide Bank Ltd Suncorp-Metway Ltd Macquarie Bank Ltd Bank of Queensland Ltd Members Equity Bank Pty Ltd Rural Bank Ltd AMP Bank Ltd Total Other Domestic Banks ING Bank (Australia) Ltd HSBC Bank Australia Ltd Citigroup Pty Ltd Rabobank Australia Ltd Investec Bank (Australia) Ltd Arab Bank Australia Ltd Bank of Cyprus Australia Ltd Beirut Hellenic Bank Ltd Bank of China (Australia) Ltd Total Foreign-owned Bank Subsidiaries BNP Paribas Citibank, N.A. Deutsche Bank Aktiengessellschaft Bank of Scotland plc The Royal Bank of Scotland Plc The Bank of Tokyo-Mitsubishi UFJ, Ltd Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. Sumitomo Mitsui Banking Corporation The Northern Trust Company Mizuho Corporate Bank, Ltd Top 10 Foreign-owned Bank Branches Other Foreign-owned Bank Branches Total Foreign-owned Bank Branches TOTAL1. BankWest (Bank of Western Australia) is a wholly owned subsidiary of the Commonwealth Bank of Australia.

Households 130,008 113,058 64,865 66,840 374,771 14,349 17,265 14,680 7,015 14,896 1,271 1,320 1,254 72,050 17,095 3,876 6,256 1,830 242 377 459 491 309 30,935 0 59 59 477,815

Total Deposits 288,559 276,907 216,748 194,527 976,741 42,622 33,417 32,390 29,929 27,232 4,186 3,485 3,524 176,785 27,624 12,146 7,670 4,966 2,370 1,170 980 780 311 58,017 12,778 6,766 6,608 5,586 4,426 3,794 3,541 3,440 3,095 2,696 52,730 31,247 83,977 1,295,518

Sources: Australian Prudential Regulation Authority, Monthly Banking Statistics, September 2010 (issued 29 October 2010), Table 4; Austrade

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Private Wealth Private wealth is a key driver of retail deposit demand. Australias private wealth market now ranks among the largest and fastest growing in the world. Since 1990, Australias total private sector wealth (including consumer durables, dwellings, deposits, shares and other equities, and reserves of life offices and pension funds) grew by 8.3 per cent per annum to A$6.7 trillion.27 Australia was the third largest high net worth individual (HNWI) market in the Asia-Pacific region and the 10th largest in the world in 2009.28 The number of HNWI in Australia, defined as persons with greater than US$1 million in investable assets, grew 34.4 per cent to reach 173,600, as at December 2009. Australia had almost 6 per cent of the regions HNWI population, accounting for 5.4 per cent of the regions total wealth, with a combined value of US$519 billion. See Austrades publication on the Private Banking Industry in Australia http://www.austrade.gov.au/ArticleDocuments/2792/Private-Banking-in-Australia-Publication.pdf.aspx Retirement or Superannuation savings In addition to voluntary savings, Australia has a mandatory retirement or superannuation savings regime which requires 9 per cent of income to be deposited in superannuation accounts which, generally speaking, can only be accessed their preservation age. Recently, the Government foreshadowed its intention to introduce legislation to gradually increase the compulsory level of superannuation savings to 12 per cent by 2019-20.29 The pool of investment fund assets (including mandatory pension, self-managed superannuation and other investment assets) stands at A$1.8 trillion, which by some measures is the fourth largest pool of savings globally.30 The majority of these superannuation savings are managed by trustees of APRA-regulated superannuation funds and invested at arms-length by professional investment managers. See Austrades publication on the Investment Management Industry in Australia http://www.austrade.gov.au/ArticleDocuments/2792/Investment-Management-Industry-in-Australia.pdf.aspx Self-Managed Superannuation Funds Self-Managed Superannuation Funds (SMSFs) are a superannuation fund managed by the members themselves as trustees of the fund. Each SMSF can have up to four members, where all members are required to be trustees. Statistics released by the Australian Prudential Regulation Authority in December 2010 show that the number of SMSFs grew from 412,560 to 439,397 over the past 12 months. SMSFs now hold A$420.6 billion, or 32 per cent of the nations A$1.3 trillion superannuation pool. The latest Multiport SMSF Investment Patterns Survey October 2010 revealed that SMSF members allocated 21.8 per cent of their assets to cash and short-term deposits in September 2010.

27. Private wealth is defined as the sum of household dwellings, household consumer durables (including market values of motor vehicles, furnishings and other household equipment), and household and unincorporated enterprises financial assets (including deposits, assets of life offices, superannuation funds and friendly societies, shares and other equity, unfunded superannuation claims and all other). Data sourced from Reserve Bank of Australia, Statistical Table B20. 28. Merrill Lynch Capgemini, World Wealth Report 2010 and Asia-Pacific Wealth Report 2010. See also Austrades data alert http://www.austrade.gov.au/ ArticleDocuments/2792/Data-Alert-101013-Asia-Pacific-Wealth-Report.pdf.aspx 29. See the Australian Governments A tax plan for our future http://www.futuretax.gov.au/pages/FairerSuperannuation.aspx 30. See Austrades publication Investment Management Industry in Australia http://www.austrade.gov.au/ArticleDocuments/2792/Investment-Management-Industry-inAustralia.pdf.aspx

18 > Australian Trade Commission

Superannuation Industry in AustraliaAssets (A$ Billion) Jun 2009 Jun 2010 By fund type Corporate Industry Public Sector Retail Sub Total Pooled Superannuation Trusts Small APRA funds Single-member ADFs Self-managed Super Funds TOTALBa

Number of Entities Jun 2009 Jun 2010

54.0 191.8 153.0 304.7 703.5 69.7 2.0 0.1 334.2 35.5 1,075.3

56.2 225.5 175.3 339.0 795.9 79.1 1.6 0.0 390.8 38.9 1,227.2

190 67 40 166 463 82 4,277 112 401,929 406,863

168 65 39 154 426 79 3,869 103 428,198 432,675

Balance of Life Office Statutory Funds

a. Estimated data on self-managed superannuation funds are provided by the Australian Taxation Office (ATO). b. Total assets does not include pooled superannuation trusts. Sources: Australian Prudential Regulation Authority Statistics, Quarterly Superannuation Performance, June 2010 (issued 9 September 2010); Austrade

Government Reforms: Competitive and Sustainable BankingIn December 2010, the Australian Government announced three broad streams of reform across the Australian banking system, titled Competitive and Sustainable Banking System.

Stream One: Empower consumers to get a better deal. Stream Two: Support smaller lenders to compete with big banks. Stream Three: Secure the long-term safety and sustainability of our financial system.

These reforms are aimed at boosting consumer flexibility to transfer deposits and mortgages; banning exit fees on new home loans; empowering the Australian Competition and Consumer Commission (ACCC) to prosecute anti-competitive price signalling; and a community awareness and education campaign. The Government will also introduce a new official Government Protected Deposits symbol for ADIs, regulated by APRA, to help consumers identify that their deposits, up to a certain cap, have the protection of the Financial Claims Scheme (FCS) in the unlikely event that the entity is wound up. The FCS, which was introduced in October 2008, is to be made a permanent feature of the Australian financial architecture and the Government has been working with the Council of Financial Regulators to determine an appropriate cap to apply from October 2011 onwards. The current cap is A$1 million per depositor per ADI. Funding sources will be supported through additional Government investments in high quality AAA-rated Residential Mortgage Backed Securities (RMBS). This is a further A$4 billion investment, taking the total Government support to RMBS since the financial crisis to A$20 billion. The Government has tasked the Treasury to design bullet RMBS structures and will amend the Banking Act 1959 to allow Australian banks, credit unions and building societies to issue covered bonds. Full details of the Governments announced banking reforms are available from the Treasury website: http://www.treasury.gov.au/banking/content/_downloads/competitive_and_sustainable_banking.pdf

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Commercial Banking and Corporate FinanceScopeServices to the commercial sector can be segregated into a number of core markets:31

Commercial Lending Intermediated lending to SMEs, large corporates, institutions and government;

Corporate Finance and Advisory: Mergers and Acquisitions M&A, demergers and other advisory; Equity Capital Markets Initial public offerings (IPOs), secondary raisings, underwriting; and Debt Capital Markets corporate, government and institutional bonds, structured finance securitisation, syndicated loans and project finance.

Australias commercial and corporate advisory sectors are known for specialised expertise in particular industries including energy, mining and resources, infrastructure and project finance, agriculture, and real estate.

Market ParticipantsAuthorised Deposit-taking Institutions There are 56 banks licensed to service wholesale clients in Australia and a further 16 banks with representative offices. Nine foreign banks operate with a subsidiary license, and a further 35 as a foreign bank branch. In addition, there is a growing number of emerging market banks that have entered Australia, particularly from China and India, primarily focused on servicing their corporate clients in Australia, as well as Australian companies interested in entering their markets. A list of authorised banking institutions in Australia is provided in Appendix A.32 There has been a re-alignment of foreign bank operations in Australia following the global financial crisis changes in Australia largely reflect outcomes of parent banks. Leading houses such as Citibank, Deutsche Bank, HSBC, JPMorgan, Royal Bank of Scotland, UBS, and others have a substantial commercial banking presence here. Boutique Advisory Firms and Securities Brokers Corporate advisory firms and small specialist finance companies provide competition in niche areas such as mergers and acquisitions advisory. Included in this category are the larger accounting firms that have a corporate advisory arm, as well as a range of smaller specialist boutique firms, including: Moelis & Company, Palladio Partners, Gresham Partners, Caliburn Partnership and BKK Partners. Securities brokers or stockbrokers are generally categorised as either institutional or retail. Many of these firms provide auxiliary services in capital market financing. Specialised Finance Companies As in the consumer lending area, non-deposit-taking specialised finance companies provide an alternative source of financing for corporations and institutions. Such institutions include asset finance and leasing companies, vendor finance companies, factoring or inventory finance companies and specialised trade finance companies. This sector was significantly affected by the financial crisis due to its dependence on wholesale markets and securitisation to fund its activities. In addition, the Australian operations of a number of foreign owned institutions were hit hard by effects in their home markets.

31. Many foreign banks providing commercial banking and corporate advisory services are also active in investment and asset management. This sector is covered in Austrades Investment Management Industry in Australia publication, 2010. http://www.austrade.gov.au/ArticleDocuments/2792/Investment-Management-Industry-in-Australia.pdf.aspx 32. Source: APRA website at http://www.apra.gov.au/ADI/ADIList.cfm

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Commercial LendingThe level of total business loans outstanding from Australias financial institutions was in excess of A$620 billion as at October 2010.33 Commercial Lending credit to the non-financial sector grew at a CAGR of 11.1 per cent over the ten years to October 2010, with lending to the financial sector growing at 18.8 per cent CAGR over the same period. Lending grew more rapidly in the early part of the decade and in 2007 and 2008 there was a market shift to intermediated lending as debt capital markets became more difficult to access. Since 2008, commercial lending has been in decline, subtracting 6.6 per cent in 2009 and 2.4 per cent in 2010. Coinciding with this, equity capital markets saw a rise in secondary market issuance, with many companies choosing to increase the proportion of their capital funded from equity (see Equity Capital markets section). Australias Bank Commercial Lending Finance and Non-Finance (Year End, A$ Billion, Excluding Securitisation)800 700 600 500A$ Billion Financial intermediaries (18.8%) Non-financial sector (11.1%)

400 300 200 100 0Dec-2000 Dec-2001 Dec-2002 Dec-2003 Dec-2004 Dec-2005Year End

Dec-2006

Dec-2007

Dec-2008

Dec-2009

Oct-2010

Note: The number in the brackets of the legends represents the compound annual growth rate since 2000. Sources: Reserve Bank of Australia, Statistical Table D5 Lending and Credit Aggregates (Last updated 30 Nov 2010); Austrade

The major domestic banks provide the bulk of commercial intermediated lending in Australia, which includes loans to large corporates, financial institutions, government organisations and SMEs. Regional banks, credit unions and building societies provide some additional competition in the smaller enterprise sector and niche areas such as rural and agricultural organisations. Similarly, leasing companies and other non-deposit taking finance companies provide specialised lending. As at February 2011, the major domestic banks account for 72 per cent34 of bank loans to non-financial corporations, while the other domestic banks account for 9 per cent and foreign banks 19 per cent. Suncorp-Metway and Bendigo Adelaide Bank are the most significant competitors in the regional domestic banks, while the largest foreign bank competitors in non-financial commercial lending are Rabobank, Bank of Tokyo-Mitsubishi, ING and BNP Paribas.35

33. Reserve Bank of Australia, Statistical Table D2, Lending and Credit Aggregates (last updated 30 November 2010). 34. Includes Bank of Western Australia, a wholly owned subsidiary of the Commonwealth Bank of Australia. 35. APRA, Monthly Banking Statistics, May 2010 (issued 30 June 2010).

22 > Australian Trade Commission

Loans and Advances to Corporations on Australian Books of Individual Banks (A$ Million)

September 2010 National Australia Bank Ltd Australia and New Zealand Banking Group Ltd Westpac Banking Corporation Commonwealth Bank of Australia Four Major Domestic Banks Bank of Western Australia Ltd1 Suncorp-Metway Ltd Bendigo and Adelaide Bank Ltd Macquarie Bank Ltd Bank of Queensland Ltd Rural Bank Limited AMP Bank Limited Members Equity Bank Pty Ltd Total Other Domestic Banks Rabobank Australia Ltd ING Bank (Australia) Ltd HSBC Bank Australia Ltd Investec Bank (Australia) Ltd Bank of Cyprus Australia Ltd Arab Bank Australia Ltd Beirut Hellenic Bank Ltd Citigroup Pty Ltd Bank of China (Australia) Ltd Total Foreign-owned Bank Subsidiaries The Bank of Tokyo-Mitsubishi UFJ, Ltd BNP Paribas The Royal Bank of Scotland Plc Sumitomo Mitsui Banking Corporation Mizuho Corporate Bank, Ltd Bank of China Limited UBS AG ING Bank N.V. The Hongkong and Shanghai Banking Corporation Ltd Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. Top 10 Foreign-owned Bank Branches Other Foreign-owned Bank Branches Total Foreign-owned Bank Branches TOTAL

Non-financial Corporations 92,370 71,747 63,476 56,673 284,265 23,313 17,360 7,933 4,147 5,297 3,572 583 51 62,256 11,001 3,287 3,097 2,357 842 526 405 31 0 21,547 6,728 5,921 4,214 4,661 3,856 4,131 1,696 2,687 2,181 2,574 38,649 18,099 56,748 424,816

Financial Corporations 9,936 7,410 10,668 12,674 40,689 698 397 76 1,253 0 0 5 19 2,448 0 0 99 0 0 63 0 131 0 293 347 200 981 398 687 121 1,361 0 436 0 4,530 4,517 9,047 52,477

Total 102,306 79,157 74,144 69,347 324,954 24,011 17,757 8,009 5,400 5,297 3,572 587 70 64,703 11,001 3,287 3,197 2,357 842 589 405 162 0 21,840 7,075 6,121 5,195 5,059 4,543 4,252 3,057 2,687 2,617 2,574 43,179 22,616 65,795 477,292

1. BankWest (Bank of Western Australia) is a wholly owned subsidiary of the Commonwealth Bank of Australia. Sources: Australian Prudential Regulation Authority, Monthly Banking Statistics, September 2010 (issued 29 October 2010), Table 2; Austrade

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Over the past ten years, the fastest growing segment of commercial lending in Australia has been to larger corporations, borrowing over A$2 million. Loans to SMEs have grown more gradually during this period. Australias Bank Lending To Business Total Credit Outstanding by Size (A$ Billion)

Under A$100,000 Jun-2000 Jun-2001 Jun-2002 Jun-2003 Jun-2004 Jun-2005 Jun-2006 Jun-2007 Jun-2008 Jun-2009 Jun-2010 Share % CAGR % 22.6 22.8 23.7 24.3 24.8 24.5 24.1 23.0 23.7 25.3 26.0 4.0 1.4

$100 000 to < $500,000 44.1 46.3 50.9 54.3 60.2 66.4 70.1 70.8 75.0 72.6 67.3 10.2 4.3

$500 000 to < $2 Million 39.0 42.0 45.2 50.2 57.8 67.6 76.5 93.3 101.1 103.3 101.4 15.4 10.0

$2 Million and Over 151.2 164.7 164.6 169.7 196.1 215.6 268.7 338.0 449.7 489.9 464.1 70.4 11.9

Total 256.9 275.8 284.4 298.6 338.9 374.1 439.5 525.1 649.6 691.0 658.8 100.0 9.9

Sources: Reserve Bank of Australia, Statistical Table D7 Bank Lending To Business (Last updated 16 Sep 2010); Austrade

Growth in lending by industry sector has varied considerably over the past 10 years. The fastest growing segments have been finance and insurance, wholesale and retail trade, transport, storage, agriculture and fishing.

Australias Bank Lending To Business Total Credit Outstanding by Sector (A$ Billion)

Agriculture, Fishing, etc Jun-2000 Jun-2001 Jun-2002 Jun-2003 Jun-2004 Jun-2005 Jun-2006 Jun-2007 Jun-2008 Jun-2009 Jun-2010 Share % CAGR % 23.2 25.2 26.8 29.0 34.1 39.3 43.5 47.2 53.7 57.4 59.3 9.0 9.8

Mining 7.5 7.5 7.5 6.1 5.2 5.7 6.8 9.4 11.7 11.5 15.1 2.3 7.3

Manufacturing 30.0 28.7 28.9 29.2 31.8 31.3 37.1 40.8 44.6 43.7 39.7 6.0 2.8

Wholesale Trade, Retail Trade & Transport Finance & Construction & Storage Insurance 13.1 13.6 12.8 14.4 17.7 19.4 21.3 24.8 30.5 31.5 28.3 4.3 8.0 34.3 35.2 40.7 43.9 49.3 54.9 64.2 74.4 87.2 93.2 92.9 14.1 10.5 39.5 41.9 43.4 42.7 47.4 49.6 62.5 80.5 123.7 133.1 126.1 19.1 12.3

Other 109.4 123.8 124.2 133.2 153.5 173.9 204.1 248.0 298.2 320.6 297.4 45.1 10.5

Total 256.9 275.8 284.4 298.6 338.9 374.1 439.5 525.1 649.6 691.0 658.8 100.0 9.9

Sources: Reserve Bank of Australia, Statistical Table D7 Bank Lending To Business (Last updated 16 Sep 2010); Austrade

24 > Australian Trade Commission

Syndicated Debt Global syndicated lending for the year to December 2010 totalled US$2.7 trillion, up 49 per cent from the previous year. The energy and power sector was most active, with a market share of 21 per cent. Australian mandated loans rose by 42 per cent for this same period, with total proceeds of US$66 billion. Australias total syndicated loans represent around 2.1 per cent of the global market. Industrials, energy, power and financials were the most active, with combined market share of 57 per cent of total syndicated loan proceeds (24 per cent, 17 per cent and 16 per cent respectively). Other major sectors included materials (14 per cent), real estate (14 per cent) and telecommunications (9 per cent).36 The four major banks are prominent in this market, in terms of both arrangers and bookrunners.37 Significant foreign competitors include RBS, Mitsubishi, Sumitomo Mitsui, JP Morgan, Credit Agricole and HSBC.

Australian Syndicated Loans Ranking

Mandated Arranger ANZ Banking Group Westpac Banking Commonwealth Bank of Australia National Australia Bank RBS Mitsubishi UFJ Financial Group Sumitomo Mitsui Financial Group Inc JP Morgan Credit Agricole CIB HSBC Holdings PLC

2010 Rank 1 2 3 4 5 6 7 8 9 10

2009 Rank 1 3 2 4 7 9 10 18 8 12

Bookrunner ANZ Banking Group Westpac Banking Commonwealth Bank of Australia National Australia Bank RBS JP Morgan Bank of China Ltd Mitsubishi UFJ Financial Group Mizuho Financial Group HSBC Holdings PLC

2010 Rank 1 2 3 4 5 6 7 8 9 10

2009 Rank 3 1 4 2 6 16 14 9 7 18

Sources: Thomson Reuters, Global Syndicated Loans Review, Full Year 2010; Austrade

On a five year total basis, Australian syndicated loan activity exceeded US$330 billion. Australian activity represents around 2.1 per cent of the world market and around 13 per cent of the Asia-Pacific region.

36. Thomson Reuters, Global Syndicated Loans Review, Full Year 2010. 37. Bookrunner is the main underwriter to the issue.

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Worldwide Syndicated Loans

2010 2009 2008 2007 2006 2006-2010 Proceeds Market Proceeds Market Proceeds Market Proceeds Market Proceeds Market Proceeds Market (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % Global By country USA Japan UK Germany France Canada Australia Taiwan UAE Hong Kong Singapore Brazil Mexico New Zealand Malaysia By Region Americas Europe Africa/Middle East 1,222.3 818.3 67.6 45.0 30.1 2.5 694.4 608.5 470.9 56.1 37.9 33.3 25.7 3.1 1,205.4 784.7 533.6 100.3 45.9 29.9 20.3 3.8 2,339.0 1,633.6 505.5 139.9 50.6 35.4 10.9 3.0 1,925.9 1,481.2 470.0 104.6 48.4 37.2 11.8 2.6 7,386.9 5,326.4 2,590.4 468.5 46.8 33.8 16.4 3.0 1,089.0 252.1 190.9 96.3 129.2 110.1 66.0 55.6 16.4 41.1 22.8 7.8 9.9 8.6 11.1 40.1 9.3 7.0 3.5 4.8 4.0 2.4 2.0 0.6 1.5 0.8 0.3 0.4 0.3 0.4 579.2 249.2 82.8 104.2 89.7 71.3 46.4 22.1 22.1 18.4 16.5 15.0 24.8 5.9 3.8 31.7 13.6 4.5 5.7 4.9 3.9 2.5 1.2 1.2 1.0 0.9 0.8 1.4 0.3 0.2 1,036.2 289.7 196.7 84.7 119.1 123.1 52.7 31.1 45.7 10.8 35.2 13.9 6.3 7.0 5.4 39.5 11.0 7.5 3.2 4.5 4.7 2.0 1.2 1.7 0.4 1.3 0.5 0.2 0.3 0.2 2,136.2 208.4 389.8 231.9 255.0 137.3 100.3 29.1 45.0 20.7 14.1 25.3 20.1 6.5 10.8 46.3 4.5 8.4 5.0 5.5 3.0 2.2 0.6 1.0 0.4 0.3 0.5 0.4 0.1 0.2 1,735.4 216.3 314.1 303.1 226.5 118.5 70.9 29.1 33.8 31.7 19.7 33.6 19.4 11.4 7.2 43.6 5.4 7.9 7.6 5.7 3.0 1.8 0.7 0.8 0.8 0.5 0.8 0.5 0.3 0.2 6,576.1 1,215.6 1,174.3 820.1 819.5 560.4 336.3 166.9 163.0 122.7 108.2 95.6 80.5 39.4 38.3 41.7 7.7 7.4 5.2 5.2 3.6 2.1 1.1 1.0 0.8 0.7 0.6 0.5 0.2 0.2 2,718.7 100.0 1,829.9 100.0 2,624.0 100.0 4,617.9 100.0 3,981.7 100.0 15,772.2 100.0

Asia-Pacific/Central Asia610.5 22.5

Sources: Thomson Reuters Global Syndicated Loans Review, Full Year 2010, Syndicated Loans Review, Fourth Quarters of 2009, 2008 and 2007; Austrade

Project and Infrastructure Finance The global project finance market showed a significant rebound in 2010, with 587 deals valued at US$206.6 billion. This represented an expansion in total loans of 44.4 per cent compared to the previous year. According to the latest survey of Reuters Thomson, each region saw an increase in deal activity: Americas increased 24.6 per cent, Europe/Middle East/Africa (EMEA) increased 28.3 per cent and Asia Pacific, with the largest rise, increased 69.8 per cent. The Asia Pacific (including Japan) accounted for 47.2 per cent of global activity (US$97.5 billion). This increased from a global share of 40.2 per cent in 2009 (US$57.4 billion). Australia has remained the second most active market in the region, behind India, with 32 deals valued at US$14.6 billion38, which accounted for 15 per cent of the regions total. Australias four major banks all ranked within the top 20 mandated arrangers for the Asia Pacific in 2010.39 Infrastructure is one of the most significant areas for project financing and Australia is widely recognised as a global leader and innovator in infrastructure financing. The nation has a long history of engagement in the infrastructure sector, beginning with the privatisations of the late 1980s and 1990s that has resulted in extensive experience with private infrastructure financing and public-private partnerships (PPPs).

38. Thomson Reuters, Project Finance Review, Full Year 2010. 39. Ibid.

26 > Australian Trade Commission

Australian expertise extends across the full spectrum of economic and social infrastructure including toll roads, airports, railway rolling stock and terminals, broadcast communications, power generators, gas and electricity transmission and distribution, shipping ports, water utilities, schools, hospitals, aged care facilities and public housing. The Australian infrastructure market is among the most sophisticated markets in the world with estimated A$9 billion in infrastructure construction projects work contracted annually. In the 2009-10 Budget, the Australian Government committed A$22 billion to improve the nations infrastructure in transport, communications, energy, education and health sectors as part of the Building Australia Fund. In addition, State Governments have committed an estimated A$2.5 billion to infrastructure projects.40 Infrastructure needs and priorities for Australia are laid out by Infrastructure Australia. Appendix F provides an overview of priority projects as at June 2010. The value of these projects totals almost A$83 billion.41 Infrastructure Australias Investment Priorities

Stage

Definition

Total Cost Estimates (A$ Million) 19,634

Early Stage

Initiatives address a nationally significant issue or problem, but the identification or development of the right solution is at an early stage. Initiatives clearly address a nationally significant issue or problem and, there has been a considerable amount of analysis of potential solutions. Initiatives have strong strategic and economic merit, and are only not ready to proceed due to a small number of outstanding issues. Initiatives meet all of Infrastructure Australias criteria.

Real Potential Threshold Ready to proceed

41,522 10,123 11,566

Source: Infrastructure Australia, Getting the fundamentals right for Australias infrastructure priorities, June 2010 http://www.infrastructureaustralia.gov.au/publications/files/Report_to_COAG_ 2010.pdf

Infrastructure Australia Infrastructure Australia (IA) was established in 2008 to coordinate a national approach to Australias future infrastructure needs. The agency plays an advisory role to governments, investors and owners of infrastructure concerning:

Significant national infrastructure priorities and initiatives; Recommendations for policy and regulatory reforms to drive better efficiencies in the utilisation of national infrastructure networks; Options to address hindrances to the development and provision of efficient national infrastructure; Infrastructure needs of the Australian public; and Possible financing mechanisms.

More information on Infrastructure Australia and its policies and guidelines is available at: www.infrastructureaustralia.gov.au

In addition to public sector infrastructure projects, Australia is currently undergoing significant investment in private sector projects that will increase the output of Australias mineral and energy sectors. Infrastructure projects directly associated with the minerals and energy sector currently stand at 15, with an estimated cost of A$11.0 billion in committed projects, and a further 31 valued at A$27.8 billion in less advanced projects.42 Committed infrastructure projects include iron ore and coal ports, rail projects and gas pipelines. Appendix G outlines the future capital expenditure commitments within Australias minerals and energy sectors.

40. KPMG, Federal Budget 2009-10 national infrastructure spending priorities June 2009. 41. Infrastructure Australia, Getting the Fundamentals Right for Australias Infrastructure Priorities, June 2010. 42. ABARE-BRS, Minerals and energy Major development projects report, October 2010.

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Trade Finance Australia has an open, diversified economy that is actively engaged in international trade and has increasingly exported goods and services to the fast growing Asian region. In 2010, Australia exported A$231 billion in merchandise trade, having grown at 7.7 per cent CAGR since the year 2000. The majority of Australias exports are natural resources and primary products and account for around 70 per cent of Australias total merchandise exports.

Australias Merchandise Exports, FOB Value (A$ Billion)2000 Crude Materials, Inedible, except Fuels Metalliferous Ores & Metal Scrap Mineral Fuels & Related Materials Coal, Coke & Briquettes Petroleum & Related Materials Gas, Natural & Manufactured Manufactures Food & Beverage & Tobacco & Live Animals Other1

2002 22.0 13.9 24.7 12.9 8.6 3.2 37.2 24.1 11.5 119

2004 23.1 16.3 23.8 13.5 7.1 3.3 33.9 23.7 13.2 118

2006 39.2 32.7 39.3 23.4 9.8 6.2 42.0 23.4 19.9 164

2008 56.3 50.0 71.1 46.9 13.8 10.4 47.1 25.2 22.7 222

2010 75.6 68.9 66.6 43.1 12.9 10.5 40.4 23.7 24.5 231

2010 % Share 32.8 29.9 28.8 18.7 5.6 4.6 17.5 10.3 10.6 100

CAGR % 2000/2010 13.5 17.8 11.2 16.5 2.1 12.6 1.5 1.2 9.3 7.7

21.2 13.4 23.0 9.3 10.5 3.2 34.9 21.0 10.1 110

TOTAL

1. Commodities not classified elsewhere in the Standard International Trade Classification. CAGR = Compound Annual Growth Rate. Sources: Australian Bureau of Statistics Cat No. 5368.0 International Trade in Goods and Services, Australia, Table 12a. Merchandise Exports; Austrade

Over the past ten years, Australian exports to Asia have grown more rapidly than other regions. Four of Australias top five country export destinations are now based in Asia.

Exports 2010 (% Share)Middle East 2.9% Oceania 4.9% Americas 6.1% Africa 1.6%

Imports 2010 (% Share)Middle East 2.2% Oceania 5.3% Africa 1.6%

Americas 14.3% South Asia 7.8% South Asia 1.2% Europe 9.1% East Asia 67.9% Europe 20.9% East Asia 54.6%

Sources: Department of Foreign Affairs and Trade, Monthly Trade Data Dec 2010, Table 3; Austrade

Sources: Department of Foreign Affairs and Trade, Monthly Trade Data Dec 2010, Table 4; Austrade

28 > Australian Trade Commission

Australias Merchandise Exports by Country, FOB Value (A$ Billion)

2000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 China Japan South Korea India USA Taiwan UK New Zealand Thailand Singapore Indonesia Malaysia Hong Kong Netherland UAE Papua New Guinea Germany South Africa Saudi Arabia Brazil Other Markets TOTALCAGR = Compound Annual Growth Rate.

2002 8.4 22.2 10.0 2.5 11.5 4.7 5.6 7.9 2.5 5.0 3.1 2.3 3.5 1.4 1.3 1.0 1.6 1.3 2.4 0.4 20.8 119

2004 11.0 22.2 9.2 5.4 9.5 4.1 5.1 8.8 3.1 3.3 3.2 2.4 2.7 1.5 1.3 0.9 1.3 1.6 2.0 0.6 18.4 118

2006 20.4 32.4 12.4 8.8 10.1 6.3 8.1 8.9 4.3 4.6 4.4 2.8 3.2 2.8 2.0 1.5 1.4 2.3 2.2 0.9 24.0 164

2008 32.3 50.8 18.4 13.5 12.1 8.3 9.3 9.3 5.3 6.1 4.3 4.0 3.0 3.6 3.9 1.6 2.1 2.5 2.5 1.6 27.7 222

2010 58.3 43.6 20.4 16.4 9.3 8.4 8.3 8.0 5.8 4.8 4.5 3.6 3.2 2.6 2.1 2.0 1.8 1.8 1.6 1.6 22.6 231

2010 % Share 25.3 18.9 8.8 7.1 4.0 3.6 3.6 3.5 2.5 2.1 1.9 1.6 1.4 1.1 0.9 0.9 0.8 0.8 0.7 0.7 9.8 100

CAGR % 2000/2010 25.5 7.2 8.5 24.5 -1.7 4.2 8.3 2.0 11.6 -1.9 4.5 4.4 -1.2 3.9 7.8 7.5 3.4 3.6 -0.1 10.6 1.5 7.7

6.0 21.8 9.0 1.8 11.0 5.6 3.8 6.6 2.0 5.9 2.9 2.4 3.6 1.8 1.0 1.0 1.3 1.3 1.6 0.6 19.5 110

Sources: Australian Bureau of Statistics Cat No. 5368.0 International Trade in Goods and Services, Australia, Table 14a; Austrade

In addition to merchandise trade, Australia exported A$53 billion worth of services in the fiscal year 2009-10, with travel (including business and personal education-related services) contributing A$33.4 billion, or over 60 per cent of Australias services exports. The Australian Government also assists Australian businesses with trade finance solutions through the Export Finance & Insurance Corporation (EFIC). In fiscal year 2010, EFIC provided financing facilities totalling A$971.3 million that supported export contracts and overseas investments of over A$5.9 billion.43 Export Finance Navigator for SMEs lists the following banks with specialist trade finance teams44 in Australia:

Australia and New Zealand Bank Bank of Queensland Bendigo Bank Commonwealth Bank of Australia HSBC National Australia Bank Westpac

43. Export Finance & Insurance Corporation (EFIC) http://www.efic.gov.au/Pages/homepage.aspx 44. Export Finance Navigator http://www.exportfinance.gov.au/Pages/Preparingforexport.aspx

Australias Banking Industry

> 29

Corporate Finance and AdvisoryMergers and Acquisitions Mergers and Acquisitions (M&A) activity improved in 2010 as the world economy recovered from the global financial crisis, according to the Thomson Reuters Full Year 2010 M&A Financial Advisory Review. The value of global-announced M&A totalled US$2.4 trillion in 2010, up 22.9 per cent from 2009. Australias M&A announced value reached US$132 billion in 2010, a 140 per cent increase from 2009. The rebound in Australias M&A activity last year was largely driven by the mining, financial, energy and telecommunications sectors. In the Asia-Pacific region M&A activity is heavily concentrated in the top three economies (Australia, China and Japan). Together, their announced deals were worth around US$347 billionaccounting for more than 60 per cent of the regions total. Of the top ten financial advisors in Australia, based on completed M&A by imputed fees, nine are foreign-based global investment houses and one is the Australia-based Macquarie Group. They together generated US$648 million in imputed fees in 2010, accounting for 43 per cent of Australias M&A advisory fees. On a five-year total basis, Australian M&A activity has been significant with announced deals totalling US$528 billion. The total value of the Australian deals was the largest in the Asia-Pacific region. Australian activity represents around 3.5 per cent of global deal flow and more than one-fifth of that of the Asia-Pacific region. Australia has a vibrant Private Equity (PE) market, raising A$17 billion over the five years to June 2010. International and domestic PE leveraged buyouts continue to contribute significantly to M&A activities. The largest PE deal for 2010 was the A$2.7 billion45 buyout of Australias second largest private hospital owner and pathology provider, Healthscope.

Worldwide Announced Mergers & Acquisitions Financial Advisors

2010 Rank Market Value Share US$Bn % Worldwide Americas USA Brazil Canada Europe UK Asia-Pacific Australia Japan China Africa/Middle East 2,434.2 1,136.3 821.6 104.2 99.6 641.0 162.9 565.9 131.7 83.9 131.1 91.0 100.0 46.7 33.8 4.3 4.1 26.3 6.7 23.2 5.4 3.4 5.4 3.7

2009 Rank Market Value Share US$Bn % 1,980.3 921.7 719.4 65.4 95.9 581.0 160.0 428.4 54.8 104.9 108.7 49.3 100.0 46.5 36.3 3.3 4.8 29.3 8.1 21.6 2.8 5.3 5.5 2.5

2008 Rank Market Value Share US$Bn % 2,887.0 1,156.4 923.8 93.1 85.5 1,168.7 269.0 512.2 90.2 77.0 113.6 49.7 100.0 40.1 32.0 3.2 3.0 40.5 9.3 17.7 3.1 2.7 3.9 1.7

2007 Rank Market Value Share US$Bn % 4,169.1 1,890.4 1,570.8 46.0 197.6 1,592.6 387.1 596.6 136.5 136.4 75.4 89.5 100.0 45.3 37.7 1.1 4.7 38.2 9.3 14.3 3.3 3.3 1.8 2.1

2006 Rank Market Value Share US$Bn % 3,609.9 1,762.9 1,475.2 33.6 162.1 1,325.2 333.8 458.5 114.5 101.3 46.7 63.4 100.0 48.8 40.9 0.9 4.5 36.7 9.2 12.7 3.2 2.8 1.3 1.8

2006-2010 Rank Market Value Share US$Bn % 15,080.6 6,867.7 5,510.8 342.2 640.8 5,308.4 1,312.8 2,561.5 527.7 503.4 475.6 342.9 100.0 45.5 36.5 2.3 4.2 35.2 8.7 17.0 3.5 3.3 3.2 2.3

Sources: Thomson Reuters Mergers & Acquisitions Financial Advisors, Full Year 2010, Fourth Quarter 2009, Fourth Quarter 2008 and Fourth Quarter 2007; Austrade

Equity Capital Markets Australia has a large and liquid equities market. During the financial crisis in 2008-09, Australias equity capital market provided support for corporations seeking capital off-setting, in part, the disruption experienced in international debt markets. Total equity market raisings46 increased by 7.5 per cent during this period with secondary market raisings rising 74 per cent from A$50.6 billion to A$88.1 billion. Many companies raised equity through rights issues and placements to strengthen their balance sheets and meet the short fall from debt markets at this time.

45. Enterprise Value at time of announced deal, 19th July 2010. 46. Includes Rights Issues, placements, calls on contributing shares, exercise of options, employee share schemes, DRPs, SPPs.

30 > Australian Trade Commission

New Capital Raisings for Cash in Australia (A$ Million)

Survey Year 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 CAGR %

Primary Raisings IPOs Privatisations 6,939 8,519 2,857 5,961 12,753 14,883 23,108 19,694 11,003 1,885 11,459 5.1 9,706 6,400 200 0 0 0 0 8,679 0 0 0

Secondary Raisings Rights Issues Placements 4,587 549 992 2,446 8,753 3,242 2,468 13,001 12,449 28,506 23,182 17.6 9,024 4,293 5,310 7,032 7,640 7,896 12,817 19,789 20,920 38,235 23,118 9.9

Other1 6,613 5,748 6,758 7,608 9,487 11,125 13,041 16,742 17,271 21,338 18,785 11.0

Total 36,869 25,509 16,117 23,047 38,633 37,146 51,434 77,905 61,643 89,964 76,544 7.6

% of Average Market Capitalisation 5.9 3.7 2.2 3.4 5.0 4.1 4.7 5.6 4.3 7.5 5.6

1. Other includes Calls on Contributing Shares, Exercise of Options, Employee Share Schemes, Dividend Reinvestment, Prospectus, SPP. Sources: AFMA Australian Financial Markets Report; Austrade

With 2,072 listed companies, the Australian stock market is the second largest free-floating stock market in Asia-Pacific after Japan at US$1,148 billion.

Size of Key Stock Markets in the Asia-Pacific Region Market Capitalisation of Floating Captals (US$ Billion, 31 Dec 2010)

1,400

1,200

1,148 USA Japan UK Canada France Germany 718 638 14,187 2,856 2,675 1,578 1,160 999

1,000US$ Billion 806

800

600472 446

400245

200

125

110

84

38

0

20

Australia

China

South Korea

Taiwan

Hong Kong

India

Singapore

Malaysia Indonesia Thailand Philippines

New Zealand

Sources: Standard & Poors, Global Broad Market Index, Dec 2010; Austrade

Australias Banking Industry

> 31

Corporate advisory services are provided by way of arranging and underwriting new equity securities for domestically domiciled corporations from the private and public sectors. A large portion of equity is raised in the secondary market through rights issues (or entitlement offers) and institutional placements. Over the past three years, secondary market issuance far exceeded primary market issuance as listed companies recapitalised and paid down debt. Commentators expect primary issuance to increase as the market outlook improves. Over the five years, Australias equity capital market raised almost US$200 billion, representing 5.1 per cent of the global equity raisings of US$3.9 trillion. Global Equity Capital Markets Equity and Equity-Related1

2010 2009 2008 2007 2006 2006-2010 Proceeds Market Proceeds Market Proceeds Market Proceeds Market Proceeds Market Proceeds Market (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % (US$Bn) Share % USA Europe, Middle East & Africa2 200.9 179.6 23.5 21.0 35.9 6.8 3.4 6.0 249.1 268.7 165.7 64.3 58.9 30.5 872.7 28.5 30.8 19.0 7.4 6.8 3.5 238.2 214.8 79.0 15.1 40.1 24.2 631.3 37.7 34.0 12.5 2.4 6.4 3.8 227.1 345.2 159.5 25.4 36.7 49.4 815.5 27.8 42.3 19.6 3.1 4.5 6.1 208.1 228.9 141.9 68.0 34.5 17.8 719.5 28.9 31.8 19.7 9.5 4.8 2.5 1,123.4 1,237.2 852.7 231.1 199.4 173.5 3,893.1 28.9 31.8 21.9 5.9 5.1 4.5

Asia Pacific 306.6 (ex Japan & Australia) Japan Australia Latin America Global Total2

58.3 29.1 51.6 854.2

1. Including Intial Public Offerings, Secondary Offerings and Convertible Offerings. 2. The regional total for Europe, Middle East & Africa in 2007 include Rights Offers that are not included in other regional sub-totals or the Global total. Sources: Thomson Reuters Global Equity Capital Markets, Full Year 2010, Fourth Quarter 2009, Fourth Quarter 2008 and Fourth Quarter 2007; Austrade

All ten of the worlds largest arrangers operates in the Australian equity capital markets. In 2010, A$29.1 billion equity was raised with estimated imputed fees of A$756 million.47

Australian Equity Capital Markets

Jan 1 2010 Dec 31 2010 Bookrunner UBS Bank of America Merrill Lynch Credit Suisse RBS JP Morgan Goldman Sachs & Co Macquarie Group Morgan Stanley Citi Deutsche Bank AG Top Ten Total Industry Total

2010 Rank 1 2 3 4 5 6 7 8 9 10

Proceeds per Bookrunner (A$Mn) Market Proceeds Share (%) 8,366 3,088 2,393 2,179 2,154 2,144 1,694 1,455 1,094 1,077 25,643 32,056 26.1 9.6 7.5 6.8 6.7 6.7 5.3 4.5 3.4 3.4 80.0 100.0

Imputed Fees (A$Mn) Manager Market Fees Share (%) 144.8 46.8 37.6 56.1 42.0 37.2 49.1 27.2 19.1 22.5 482.4 755.7 19.2 6.2 5.0 7.4 5.6 4.9 6.5 3.6 2.5 3.0 63.8 100.0

Sources: Thomson Reuters, Equity Capital Markets Review, Full Year 2010, Australian Equity Capital Markets; Austrade

47. Thomson Reuters, Equity Capital Markets Review, Full Year 2010.

32 > Australian Trade Commission

The Government is progressing towards the introduction of competition to exchange markets in Australia. On 1 August 2010, market supervision for local exchanges transferred to the Australian Securities and Investment Commission (ASIC) and in April 2011, ASIC published new market integrity rules to provide the framework for the introduction of competition in equity exchange markets. These rules are expected to begin on 31 October 2011.48 On 4 May 2011, the Government granted a licence to Chi-X Australia Pty Ltd as an alternative securities exchange. In a joint media release, the Treasurer and Assistant Treasurer said Competition in Australias financial markets is critical to promoting exchange innovation, lowering transaction costs for market participants, leveraging our pool of national superannuation savings, and improving liquidity and access to capital for companies.49

Debt Capital MarketsDebt capital markets include the issuance of bonds by Australian governments and non-government institutions, asset-backed securities and Kangaroo bonds (bonds issued in Australian dollars by non-residents). Australia has US$1.4 trillion debt securities outstanding the regions third largest amount after Japan and China. Australian governments and business issue in both domestic and international markets. Domestic debt market issuance totalled A$116.6 billion50 in 2010 with A$70.3 billion51 issued through offshore markets namely the US, Europe and Japan. International and Domestic Debt Securities Amount Outstanding Residence of Issuer (US$ Billion, June 2010)3,500Domestic Securities 24 2843 International Securities

3,000

2,500US$ Billion

2,000

1,500531 126 1049 845 30 655 26 5 225 8 201 50 117 51 115 23 106

1,000

USA Japan UK France Germany Italy Canada

25,081 12,457 1,550 2,850 2,411 3,192 1,336

6,177 168 3,500 1,694 1,901 1,001 592

500

0

205

37 58

9 32

China

Australia

South Korea

India

Malaysia

Taiwan

Thailand

Hong Kong

Singapore Indonesia Philippines

New Zealand

Sources: Bank for International Settlements, Quarterly Review, Dec 2010, Tables 11 and 16A; Austrade

Over the decade to June 2010, non-government debt outstanding more than tripled from around A$400 billion to A$1.3 trillion. Non-government debt securities were more than four times the government debt securities outstanding with the local financial institutions being the largest issuers in these markets.

48. Australian Securities and Investment Commission 10-151MR ASIC ready for market supervision http://www.asic.gov.au/asic/asic.nsf/byheadline/10-151MR+ASIC+rea dy+for+market+supervision?openDocument. ASIC 11-87MR ASIC publishes final competition market integrity rules 29 April 2011 http://144.140.79.138/asic/asic.nsf/ byheadline/11-87MR+ASIC+publishes+final+competition+market+integrity+rules?openDocument 49. Australian Government Treasury Government approves new financial markets competitor 4 May 2011 http://ministers.treasury.gov.au/DisplayDocs. aspx?doc=pressreleases/2011/067.htm&pageID=003&min=brs&Year=&DocType 50. Includes public domestic non-government bonds (including Kangaroo bonds), semi-government bonds and asset backed securities. Does not include The Commonwealth Government of Australias bonds that had gross bond issuance of A$58.4 billion in the year to June 2010. See the AOFM Annual Report http://www.aofm. gov.au/content/publications/reports/AnnualReports/2009-2010/download/AOFM_Annual_Report_2009-10.pdf 51. Australian and New Zealand entities. Source, INSTO League Tables as at 10 January 2011.

Australias Banking Industry

> 33

Australias Debt Securities Outstanding (Fiscal year ending June, A$ Billion)1,800 1,600 1,400 1,200A$ Billion Non-Government Short Term Non-Government Long Term Non-Government Overseas Government

1,000 800 600 400 200 0

1993 1994 1995 1996

1997

1998 1999 2000 2001

2002 2003 2004 2005 2006 2007 2008 2009 2010

Sources: Reserve Bank of Australia, Statistical Table D4 (data downloaded 30 Sep 2010); Austrade

In 2010, public domestic bond issuances (including self-led deals) in Australia totalled 194 deals valued at A$116.6 billion. By far the majority of these issues were in public domestic non-government bonds, the bulk of which were issued by financial institutions (106 deals valued at A$69.6 billion). This figure also includes 76 Kangaroo bond issues (foreign entity bonds issued through the domestic market in Australian dollars) valued at A$36.1 billion. Public Domestic Bond Issuances including self-led deals 01/01/2010 31/12/2010

Bookrunner Public Domestic non-government Semi-government bonds Public Domestic ABS TOTAL1. Includes A$36.1 billion Kangaroo bonds. Source: INSTO League Tables as at 10 January 2011

A$m 81,665 13,100 21,785 116,550

Deals 149 10 35 194

Bonds issued onshore totalled A$417 billion at June 2010, of which A$294 billion was issued by locally domiciled entities and A$124 billion issued by non-resident issuers (Kangaroo bonds). Australias financial institutions are the largest issuers of bonds in the local market.

34 > Australian Trade Commission

Australias Corporate Bonds Outstanding Issued Onshore1Banks and Other Financial Corporations 19 24 27 28 35 48 64 78 99 135 172 41.1 24.3 Non-financial corporations 17 23 28 32 33 39 42 48 45 41 41 9.7 8.9 Assetbacked 24 30 42 52 64 79 99 122 112 99 81 19.5 12.8 Non-Residents (Kangaroo Bonds) 9 18 21 20 34 48 81 103 110 103 124 29.7 30.1

A$ Billion Jun-2000 Jun-2001 Jun-2002 Jun-2003 Jun-2004 Jun-2005 Jun-2006 Jun-2007 Jun-2008 Jun-2009 Jun-2010 Share % CAGR % since 2000

Total 70 95 117 132 166 214 286 352 366 378 417 100.0 19.5

1. Long-term non-government securities issued in Australia. Sources: Reserve Bank of Australia, Statistical Table D4 Debt Securities Outstanding; Austrade

Australias major banks were the largest arrangers in 2010 with many foreign banks providing competition in the market. Public Domestic Non-Government Bonds1 including self-led deals 01/01/2010 31/12/2010

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Bookrunner ANZ National Australia Bank Westpac Institutional Bank Commonwealth Bank of Australia UBS RBC Capital Markets TD Securities JPMorgan HSBC Royal Bank of Scotland Deutsche Bank Credit Suisse BNP Paribas Macquarie Group BMO Capital Markets Merrill Lynch Barclays Nomura Nikko SSB RaboBank TOTAL

A$m 14,871 10,663 10,106 9,669 7,896 7,488 5,963 2,971 2,933 2,546 2,392 1,058 1,017 629 350 300 300 238 225 50 81,665

Deals2 53 21 36 35 34 40 34 10 5 12 13 5 5 3 2 1 1 2 1 1 149

1. A$50 million minimum, 1 year minimum. Pricing must be disclosed. All increases eligible. Excludes ASX listed corporate bonds. 2. Bookrunners given equal allocation. Source: INSTO Leagues Table, as at 10 January 2011

Australias Banking Industry

> 35

A recent Government review, Australia as a Financial Centre (November 2009),52 found that if Australia is to develop as a leading financial centre that provides liquid and efficient financial services across a broad range of products and asset classes, then a more diversified and liquid bond market should be part of that vision. In May 2010, the Government announced that the Australian Securities and Investment Commission (ASIC) would introduce a class order relief permitting listed entities, within certain parameters, to issue bonds to retail investors using a simplified process.53 The initiatives simplify the disclosure requirements for certain offers of listed vanilla bonds by allowing such offers to be made with reduced disclosure under a short-form prospectus. The measures also allow vanilla bonds to be offered under a two-part prospectus, comprising a base prospectus (which may be used for a number of different offers) and a second part prospectus (which will relate to a particular offer). In December 2010, the Government announced further reforms, including reducing red tape associated with issuing corporate bonds to retail investors, streamlining disclosure requirements and prospectus liability regulations. It will also facilitate the trading of Commonwealth Government Securities on a securities exchange in Australia, as part of its broader agenda to foster a deep and liquid corporate bond market.54 Asset-backed Securities Australias asset-backed securities market has operated for over twenty years and has provided funding for Australian co