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Post-crisis investment evolves
Richard Yetsenga |
The economic aftermath of the COVID-19 crisis looks very different to historical cycles.
24 May 2021
Foreign bank activity: healthy economic conditions
One measure of Australia’s economic standing internationally is the amount of activity involving foreign banks in local financial markets. Foreign banks tend to follow their clients into jurisdictions. And their activity in Australia throughout 2020 remained solid.
In fact, compared with many other markets, Australia was relatively stable throughout 2020 and is an increasingly attractive investment destination.
"Banks now find themselves in a fortunate situation with money to invest and opportunities to explore.”
Data from MinterEllison’s latest Foreign Bank Tracker show strong foreign inbound investment into Australia from Europe, the US and Asia - in excess of what was expected when the COVID-19 crisis began.
Numbers game
There is confidence in Australia as an attractive investment destination and a safe harbour for investors. The data explored around foreign bank activity are evidence of this.
North American banks grew resident Australian assets by 26 per cent, Asian banks by 12 per cent and European banks by 7 per cent. While overall this is a little slower than in previous years, the growth patterns are promising and the figures impressive when considering investments stalled, deals did not proceed and the Foreign Investment Review Board (FIRB) lowered the threshold to zero for scrutiny in 2020.
In terms of aggregate assets, the European banks remain the largest sector group. However, Asian banks overtook North American banks in 2013 and have continued their strong year-on-year compounded annual growth. There is also a possibility they may overtake European banks in future years as the Australian economy further pivots to Asia.
While the growth of foreign bank activity in Australia was slower in 2020 than in previous years, foreign banks continued to increase their presence in Australia despite the turmoil caused by major events that threatened the investment landscape throughout the world.
In many cases, market activity paused for a period of time during 2020 but restarted before the end of the year. Banks now find themselves in a fortunate situation with money to invest and opportunities to explore. In 2020, businesses were focused mainly on survival. Now momentum is building as businesses start to recover and repay loans to banks, governments provide incentives for business spending and growth, and funds with capital to spend are looking for opportunities to invest.
Recovery mode
The growth of foreign banks provides some additional competition to major domestic banks in certain key focus sectors such as infrastructure and property but this is of course in the context of the Australian banks completely dwarfing the foreign banks in terms of scale.
The increased presence of foreign banks in Australia reflects overall long-term confidence in Australia’s economy, governance and opportunities for growth. As global economies shift to ‘recovery mode’, MinterEllison anticipates more opportunities and increased foreign bank growth.
The high confidence in Australia as an investment destination is expected to continue. The long-term trend is year-on-year growth and there is nothing to suggest this will change.
Looking ahead, some volatility is likely to continue as markets around the world shift and recover from the economic slowdown and market uncertainty at different paces. Overall, however, the foreign bank activity paints a positive picture of capital flow into Australia.
With increased government stimulus, customers embracing digital solutions and Australia offering a relatively stable market, there will be plenty of opportunities ahead.
John Elias is Partner and Foreign Bank Tracker Lead Partner & Jeremy Blackshaw is International Managing Partner at MinterEllison
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
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