Big Four - Look Out - Here comes the Regional Banks

Submitted by Share Trading on 13 December, 2005 - 19:51

Australia's regional banks outperformed the big four this year as they expanded their branch networks beyond traditional geographic areas.

The six main regional banks - Adelaide Bank, Bank of Queensland, Bendigo Bank, Elders Rural Bank, St George and Suncorp - grew faster than the majors in nearly every key measure, according to a survey by accounting firm KPMG.

That is despite intensifying competition, especially over savings accounts, as well as the slowing housing market.

Total assets jumped 13.3 per cent for the regionals compared to 6.5 per cent for the majors, while the regional return on equity of 17.8 per cent was slightly ahead of the four major banks - National Australia Bank, Commonwealth Bank, ANZ and Westpac.

KPMG partner Martin McGrath said the regionals' strategy of expanding their brand network outside of traditional areas, as well as the successful use of broker channels, has paid off.

"They are clearly on the front foot," Mr McGrath told journalists.

"They have been exceptionally successful.

"They need to keep performing at that level (to compete) but there is no reason to say that they won't.

"Can they continue to do better than the majors? It is a bit harder to say."

The battleground of 2005 was in retail deposits, with the big four and foreign players enticing customers with high interest, online savings accounts.

Yet the regional's managed to outperform, growing retail deposits by 11.2 per cent, compared to just four per cent from the majors.

The next battleground is likely to be in the business arena, with the major banks focussed on winning loans from small to medium sized enterprises.

But the regionals have a head start, growing business loans by 17.8 per cent in 2005, nearly double the 9.8 per cent growth of the majors.

Mr McGrath also suggested that the regional banks were attractive takeover targets, particularly for large foreign banks looking for an entry point into Australia through an established franchise and branch network.

"These guys are ... very attractive as acquisition targets but they would also be very expensive at the moment," he said.

"Because they have been so successful, their share price is very high."

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