Name of the Company: Westpac
Business Sector: Banking and Financial Services
Operating Geography: Australia and New Zealand
About the Company: Westpac is considered as one of the four “Big Banks” of Australia. It is the second largest bank by market capitalization and is the first bank founded in Australia in the year 1817. It offers a large portfolio of banking and financial services to its customers. It employs 32,620 (2015). It is headquartered at Sydney.
Revenue: $ 21.642 billion (2015)
Competitive Analysis of westpac
|1. Strong asset quality|
2. Recognized as the Global 100 Most Sustainable Corporation at Davos in January 2014
3. Strong capital levels
4. Strong operating performance
5. Workforce diversity
6. High customer growth
|1. Not meeting the shareholder's expectations on profit
2. Legal issues
|1. Service digitisation|
2. Reducing complexity of products and services
3. Investment in firms for data security and wealth management
4. Expansion across geographies
|1. Economy slowdown
2. Competitor threats
3. Risk mismanagement
1) Strong asset quality: Asset quality of the bank has been growing with the lowering of the number of business loans that are impaired or under stress. Reduction in the customer 90+ day delinquencies in loans and mortgages has also contributed to the asset quality. The ratio of stressed assets to total committed exposures has fallen to 1.2% in 2014. This also led to growth in cash earnings by 8% in 2014. Even the impairment charges have been reduced by 23% over the year 2014.
2) Recognized as the Global 100 Most Sustainable Corporation at Davos in January 2014: The bank made progress with respect to sustainability and was recognized as the Global 100 Most Sustainable Corporation at Davos. It was acclaimed as the most sustainable bank around the globe. Also, Westpac emerged as the leader in Dow Jones Sustainability Index of 2014.
3) Strong capital levels: The operating performance of the bank across all divisions has been excellent and has brought about a 5% rise in revenue and operating profit. It has been termed highly efficient bank with expense to income ratio at 41.6% in 2014. It has got a strong portfolio of brands and operates across divisions
4) Strong operating performance: The capital position is very strong and it is efficiently managed which came into use in acquiring a portfolio of $8 billion from Lloyds Australia and led to growth in housing lending and infrastructure, besides giving dividends to the shareholders in 2014. Westpac aims to balance capital efficiency, adequacy and flexibility while determining its management plans and capital sufficiency. It makes use of an Internal Capital Adequacy Assessment Process (ICAAP), which develops a strategy for contingency and buffer capital, considers economic and regulatory requirements, challenges the capital requirements and measures in a process by considering the impact of adverse economy and considers the stakeholders’ perspectives including that of credit rating agencies.
5) Workforce diversity: The leadership positions have seen increased percentage of women to 44% and mature aged workers above 50 years to 20.9%. It also launched program (Reconciliation Action Plan (2015-17) to support Australian consumers, communities and employees. These measures have contributed to maintain strong workforce diversity across the organization.
6) High customer growth: Westpac is acclaimed as lead in Domestic Bank for Transactional Banking for eleventh year and it is ranked as No. 1 as compared to other Australian banks for foreign exchange market share globally for the ninth year. The Retail and Banking division as well as St. George have emerged as top rankers in Business and consumer banking. It has encountered 14% increase in new customers for Westpac and 6% growth in customers who have opted for 4 for more products in 2014.
1) Not meeting the shareholder's expectations on profit: In 2015, the profit looked good in the headlines but the distribution of dividend at mere A$0.93 c a share could not match the investor’s expectations. As per a report published in 2014 the Australian banks need to hold more capital to face competition and future financial crises. It also highlighted minimum education standards for financial advisers and reduction in superannuation fees. This means lesser dividend would be paid out to the shareholders as more capital is retained. The bank would also need to use dividend reinvestment program to raise capital and with high reserve requirements, the return on loans may suffer as well.
2) Legal issues: Maurice Blackburn, a social justice law firm of Australia, filed class action suit against five banks which included Westpac as well. The case was filed to rescue customers from late credit card fees they had paid which were worth millions of dollars. They can receive compensation for those exception fees which were unfair. The five banks had charged household with around AUD 652 million. During June, 2009 to July, 2010 for cases such as insufficient funds for any transaction, exceeding credit card limits and late credit card payments.
1) Service digitisation: The bank has moved to service digitisation which includes new services introduction for 24/7 availability of banks. Some of them include smart ATMs and new digital platform in Retai banking and business division. New banking apps have been facilitated that helps customers have greater flexibility on managing their own finances at their convenience.
2) Reducing complexity of products and services: The bank divided its retail banking and business division into two parts:
• consumer bank: It is responsible for consumer banking products.
• commercial and business bank division: It is responsible for SMEs, commercial and agricultural business, assets and financial equipment.
For simplification and consistency of process, one executive for each segment would enhance accountability and accelerate customer focussed strategy. It is a new opportunity for the bank in its customer-centric growth strategy due to dedicated product and marketing capabilities.
3) Investment in firms for data security and wealth management: In wealth management sector, the bank has higher penetration of 20.1% which helps it to occupy the top position in the market. The bank can further its activities in this segment for higher growth. The bank has also invested in QuintessenceLabs which is a specialist in technology security to maintain confidentiality of data. QLabs makes use of quantum technology to encrypt data. This could bring gain on returns as the encryption of data is of vital importance to all the banks and would lead to customer growth as well.
4) Expansion across geographies: The bank is currently operational in Australia, New Zealand and Asia, US, UK and some Pacific Islands. It can leverage its strengths and expand across other nations as well and provide the financial services.
1) Economy slowdown: Australia may face tightening of monetary policy by the central bank. The APRA would raise the requirements for capital reserve ratios for the banks. This in turn would cause the bank to restrict their dividend payout to the shareholders and lower the return that the bank gets from lending to various households and other institutions.
2) Competitor threats: The Westpac competes with other investment banks, credit unions, building societies, mortgage originators, credit card issuers, brokerage firms, fund and asset management companies, insurance companies, and internet-based financial services providers, new competitors from other sectors including retail, technology and telecommunications. The organizations may be global or specific to local regions. The competition for deposits is quite high in Australia as the regulatory compliance globally mentions clearly the requirements to manage liquidity and ensures proper balance sheet composition. Also while accessing the financial institutions, the credit rating agencies and investors for debt search for the best institution with strong balance sheets, thereby further tightening the deposit funding competition among banks. The growth in credit has been lowered in Australia compared to the results for past 20 years. Thus the competition remains intense for lending sector too. The pricing competition is high for mortgages as well as the institutions tend to grow their market capitalization. It will remain so in the future too and is less likely to reduce. Competition in wealth business to gain a market share for pension funds and financial advisory sector would increase as this sector is growing very fast due to high demand.
3) Risk mismanagement: Different kinds of risks are associated with the banking operations like operational risk, sovereign risk that can occur if foreign governments default, adverse credit and capital market state, reputation and goodwill loss and risk of poor strategic decisions. These risks need to be managed properly which otherwise could adversely impact the business and financial performance or deteriorate the financial position of the company.
|1) Focus on budget repair|
2) Foreign investment policy
3) "Four Pillar Policy"
|1) Improved business activity
2) Tightened monetary policy
|1) Increasing need of ageing population and culturally diverse population|
2) Increasing employment population
|1) Digitisation of services
2) Use of technology for security
|1) Class Action Suit for high exception fees||1) Environmental risk considerations|
1) Focus on budget repair: The government of Australia is focussed on repairing the budget according to the changing economic scenario as the economic growth is expected to see a decline. The activities such as decline in investment for mining activities and lower public spending are evident of this emerging scenario. So, there could be prudent budgetary allocation by the government which may affect bank funding.
2) Foreign investment policy: The Australian Government has presented the “four pillars policy” for the banks which states that to maintain appropriate levels of competition in the banking sector, there should be at least four major banks. This makes it mandatory for other banks as well to stay in the competition with attractive schemes.
3) "Four Pillar Policy": The government has also laid down policies for acquisition of stake by a foreign company. The Financial Sector (Shareholding) Act 1998 states that the Treasurer must approve if the stake to be acquired is more than 15% for a financial sector company. The proposals for such an acquisition are subject to the foreign investment policy of the Australian government as per the Australian Foreign Acquisitions and Takeovers Act 1975.
1) Improved business activity: The increase in business activity can be attributed to the rise in non-mining business environment, specifically services sector due to stronger household demand and resource exports. Low interest rates have increased demand for housing loans and new investment in dwelling. This allows for growth in deposits and investments.
2) Tightened monetary policy: Controlled inflation, moderate employment growth and lowered GDP would push the central bank to maintain its cash rate at 2.5% but it would gradually tighten the policy as the international markets improve with increase in Australia’s trade activities and firm domestic demand.
1) Increasing need of ageing population and culturally diverse population: The needs of different demographic segment must be catered to by the bank to promote customer growth. The bank has acted along these lines for the ageing population with a dedicated team for them to facilitate Self Managed Super Funds. It has also altered the multi-lingual country-specific banking platform to support culturally diverse population and provided an online digital platform to open an account before relocation. It also developed the online advisory board to support them for providing financing services at ease. There is also a provision of a dedicated team for the indigenous customers.
2) Increasing employment population: As the labour markets of Australia stay soft, the unemployment rate would show only a marginal increase at the start and then decline slightly by the end of 2015. The initial reduction in employment may impact customer deposits as they would depend on their investment for survival and thus, it would reduce bank’s earnings in the beginning of 2015.
1) Digitisation of services: With digitisation of services, the bank aims to accelerate the pace of customer-focussed strategy. New technology intervention in the services sector has improved the customer experience of doing banking. They can avail the service 24/7; anywhere at their own convenience using the smart devices. Some services include smart ATMs and digital platform for retail banking and business division.  Besides this, going digital has also promoted innovation. Fingerprint sensor called as Touch ID is facilitated for the Westpac customers to securely sign in to the digital platform from their I-Pads. This innovation received a hearty welcome from around 3000 customers as it was aimed at improving their security and convenience while operating with smart devices.
2) Use of technology for security: To maintain data confidentiality, the bank acquired stake of around 11% in QuintessenceLabs which is a specialist in technology security. QLabs would use the quantum technology to encrypt data. This strategy is targeted at winning the customer’s trust of their details being secure with the bank, thereby adding to the customer growth and higher returns.
1) Class Action Suit for high exception fees: There is an ongoing class action suit against Westpac for charging heavy penalties to household consumers for late credit card payments, or exceeding credit card limits or making transactions with insufficient funds in the account. The charged amount is said to be unfair by the firm, Maurice Blackburn. Such activities should be put to check which may otherwise lead to reputation or goodwill risk for the bank.
1) Environmental risk considerations: The scarcity of natural resources like land, water and trees, supporting the food requirements of growing population and the energy crisis are vital in accessing the value of natural resources. The banks need to take them into consideration for making various lending or investment or other strategic decisions to promote long-term growth. Replacement of fossil fuels with renewable energy sources leads to a more sustainable economic model. The capital market can focus on these new opportunities as profitable ventures. Thus, as the banking operations may be affected by the environmental deterioration, accessing and understanding the adaptation risk for the organization, natural capital risk and its value, and reducing the environmental footprint are some of the action plans initiated at Westpac. Westpac has adopted an inclusive approach where it engages with all the stakeholders including its suppliers, customers, employees, the government and other interest groups to create a sustainable economy. To protect the environment, the bank introduced the green bond after partnering with the World Bank (suppliers). It lent $8 B to the environmental service sector (CleanTech - customer) for cleanliness. It works with building owners and improves resource efficiency while designing the local retail networks to reduce environmental impact. It aims at maintaining carbon neutrality, office paper use reduction, recycling and effective power use.
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