Stability and resilience during the financial crisis

The financial services sector in Australia is sophisticated and ideally positioned as a centre for the Asia-Pacific region.

The strength of the Australia financial services sector was evidenced by the resilience of the Australian economy throughout the recent financial crisis. The Australian economy was ranked the most resilient in the Asia-Pacific region in 2009 and as one of the four most resilient globally (Source: IMD World Competitiveness Online 1995-2009 (Updated: May 2009).

Australia’s banks are among the strongest in the world. Of the world’s nine major which are rated AA or above by Standard and Poor’s, Australia is home to four. These strong credit ratings enabled Australian banks to continue to raise funds from overseas during the financial crisis, and – in contrast to many other countries – no bank in Australia required capital injections from the government during this period. In fact, over the course of 2008, Australian banks were some of the most profitable.

The relative stability of the Australian economy during the crisis can also be attributed to the sophisticated system of regulation governing the country’s financial markets, which is viewed around the world as a model of responsible and prudential regulation.

A strong, highly developed sector

Australia has deep and liquid financial markets and is recognised as a regional leader in investment management and in areas including infrastructure financing and structured products. The strength of the financial services sector is underpinned by a mandated retirement savings scheme, highly skilled and multilingual workforce and advanced business infrastructure.

Finance and insurance is the fourth largest sector in Australia's economy, generating 8.1 per cent or A$81 billion of real gross value added in 2008-09. This contribution is up from 6.6 per cent two decades ago (Source: Australian Bureau of Statistics, can.no.5206.0, National Income, Expenditure and Product, Time Series Workbook (released 2 September 2009). The finance and insurance industry is almost as big as the mining sector (the industry traditionally associated with Australia's economic wellbeing) and its expansion has also aided growth in related sectors such as communications, property and business services.

Highly developed financial markets make Australia one of the major centres of capital markets activity in Asia and Australia’s large and mature financial services sector has assets of more than A$4.5 trillion, which is equivalent to almost four times GDP.

 Underpinning much of Australia’s financial services strength is the growth of its investment funds sector. Australia has one of the largest pools of consolidated assets under management globally, currently valued at about A$1.2 trillion (US$950 billion).

Export

The Australian industry, with the active support of the Australian and state governments, is looking to build on our capabilities to take advantage of emerging opportunities in the region and globally.

Australia’s annual export value of goods and services now exceeds US$230 billion (representing more than 20 per cent of GDP), with a compound annual growth rate of around 9 per cent per annum since 1998 (Source: World Trade organisation, statistics database (downloaded 12 May 2009). This strong growth reflects outgoing economic reforms, Australia’s rising competitiveness, contributed trade openness and diverse export destinations.

In particular, Australian-based firms are seeking to position Australia as a centre for excellence for funds management. A recent survey showed fund managers are rapidly expanding their operations around the globe, particularly in the Asia-Pacific region (Source: Survey of members of the Investment and Financial Services Association, 2008). Australia is recognised for its innovation and sophistication in the provision and administration of managed funds products.

Finance

Investors in Australia can also look to Australia's financial services industry for investment financing. The country has been assessed as having the third best regulation of securities exchanges and the fourth soundest banking system in the world (Source: World Economic Forum, The Global Competitiveness Report 2008-09) and Australia's percentage of non-performing loans is among the lowest in the world (Source: IMF, Global Financial Stability Report, April 2009, Statistical Appendix, Table 24). Financial sector regulation is recognised as world best practice, and provides a transparent and secure base for expansion within the region.

Supporting investment

Australia offers global financial services institutions opportunities in a rapidly expanding domestic market and an ideal location for servicing markets in the Asian time zones.

The Australian Government is committed to building upon Australia’s strong regulatory environment and financial sector expertise, and firmly establishing Australia as a financial centre in the region. The government is taking a number of initiatives to support this objective.

In 2008, legislation was passed, which will progressively reduce the withholding tax rate on specified distributions from managed funds from 30 per cent to 7.5 per cent by 2010-2011, making it one of the most competitive in the world. The government is also currently undertaking a major review of Australia's tax system recognising the importance of taxation for our international competitiveness generally and for the competitiveness of the financial services sector in particular.

The government is also looking at opportunities for simplification of Australia's financial services regulation and negotiating mutual recognition agreements with key international markets. Signed agreements have already been reached with the United States, Hong Kong and New Zealand. In addition, Australia has gained recognition as an approved destination for investment funds under China’s Qualified Domestic Institutional Investor program.

The government has assembled a panel of experts comprising financial sector representatives, leading academics and senior government officials which, together with the establishment of a dedicated team in The Treasury, are working to identify barriers to inward and outward investment and develop policies that will help Australia to achieve its full potential as a financial centre.

Australia's financial services sector at a glance

Australia has:

• One of the largest pools of funds under management in the world, now standing at around A$1.2 trillion (US$950 billion), with more than 70 per cent of this being superannuation (pension) fund assets. Since 1994, superannuation funds under management have increased by 12.7 per cent (compounded annually) to more than A$700 billion.
• The largest stock market by free-float market capitalisation in Asia (ex Japan), and ranks seventh in the world. In September 2009, Australian market capitalisation stood at US$952 billion, compared with US$362 billion in Hong Kong and US$179 billion in Singapore.
• The fastest growing foreign exchange market in the Asia Pacific and seventh largest market in terms of global turnover. The Australian dollar is the sixth most traded currency and the US$/A$ is the fourth most traded currency pair. 
• The second largest debt securities market in region (ex Japan) in terms of the issuance of both international and domestic debt securities. The country has more international debt securities outstanding than any other Asia-Pacific nation and ranks fourth in the region in terms of domestic debt securities. 
• The largest securitisation market in Asia Pacific and the fourth largest value of issuance in securitisation assets globally behind the US, the UK and Spain. 
• The fourth largest insurance market in the Asia Pacific and the 12th largest in the world in terms of premium income. 
• The largest merger and acquisition market in the region and one of the most active globally, with a market share of 3.4 per cent of completed deals in 2009 (Source: Thomson Reuters). 
• The largest hedge funds market in the region with total assets under management standing at US$27 billion in December 2008. 
• Debt and equity markets that are amongst the most liquid and sophisticated in the world with new products emerging, such as exchange traded CFDs, property derivatives, and products related to carbon trading.