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According to MinterEllison’s seventh Foreign Bank Tracker report, which analyses capital flow trends into Australia and is partly informed by APRA statistics, there was “better than expected growth” during the last year for foreign banks.
Minters partner John Elias commented: “While in aggregate foreign bank growth wasn’t as strong as it had been in previous years, many foreign banks increased their balance sheet presence in Australia, given the strong public health measures taken by Australia which have protected its economy and seen it be one of the better performers during 2021.
“This was aided by strong resource exports and favourable commodity prices.”
The firm noted in a statement that 2021 was a tough year for banks to grow, with COVID-19 leading to recessionary economic conditions around the world.
“Banks from some countries were in a better position than others to target growth in Australia, leading to a shakeup of the fastest growing foreign banks in Australia, which in 2021, were fairly evenly spread between the different regions: four from Europe, three from Asia and three from the US,” the firm said.
“Notably, the second fastest growing bank, JP Morgan Chase, due to its size, added more resident assets in dollar value than the rest of the top 10 fastest growing banks combined.”
This led to North American banks in Australia growing 17 per cent in aggregate, the report detailed, again delivering the fastest growth of the three different global regions.
European banks grew the equivalent of 5 per cent in aggregate and Asian banks grew by only 30 bps.
Asian banks’ slower aggregate growth than European banks marked a change from 2020, MinterEllison continued, when European banks were in aggregate the most cautious towards growth.
Most banks in the top 10 fastest-growing foreign banks also had a sizable presence in Australia, it said, with just one foreign bank in the top 10 having less than $3 billion in assets.
“Investment from Asia remained stable, but with little growth due largely to flat growth in China. However, there was some growth coming from European markets and high growth from North America,” Mr Elias explained.
Safe haven appeal is likely to again be a key theme in 2022, Minters advised.
This is a result of the impact of the current war in Ukraine, with distance from tyranny, rather than tyranny of distance, making Australia an increasingly attractive investment destination, supported by a highly educated workforce, relaxed travel restrictions and immigration.
“Despite the difficult economic conditions, Australia clearly remains an attractive investment destination and safe harbour for investors,” said Mr Elias.
Elsewhere, primary resources in Australia are “strong, stable and always attractive”, the firm noted, “and we expect that trend to continue”.
This is evidenced by the foreign banks’ continued investment in Australia’s agribusiness sector, complemented by confidence in the commercial property and renewable energy sectors, Minters said.
There are also looming regulatory challenges, including FIRB and ACCC requirements and managing multiple state jurisdictions.
“We expect the impact of global inflation on interest rates and currency to kick in during the near to mid-term future,” the firm said.
However, Mr Elias said that he remains optimistic.
“We have been operating in a low inflation environment for close to a decade, so inflationary pressures will have an impact,” he concluded.
“However overall, the story of foreign bank investment in Australia remains positive.”