Background of the Australian Financial Sector
Australia is one of those stable economies which have faced the Global Economic Crisis quite successfully. The banking sector of Australia has earned a worldwide due to sound supervision and regulatory framework for the financial market.
According to the Global Competitiveness Report 2011 – 2012, issued by the World Economic Forum, the ranking of the Australian economy out of 142 selected economies of the world is 20. The financial market of Australia has a ranking of 6 out of 142 financial markets of the selected countries in the report (Schwab, 2011; Invest Victoria, 2009).
These rankings depict the stability and progress of the Australian financial sector. The corporate and domestic customers enjoy the flexibility with which they are able to avail the financial services in the country.
There has been a consistent increase in the volume of assets of the financial service providers in Australia; in fact the growth rate of the financial sector has leaped forward than the overall economic growth of the country. The banking sector of the country comprises of half of the financial sector of the country.
Apart from banks, other institutions, such as “Authorized Deposit taking Institutions (ADI)”, also provide financial services (MCU, 2011).
The total assets of the financial institutions in December 2010 stood at $ 2,524 billion, out of which $ 1,887 billion were attributable to the major banks and $ 76 billion to the credit unions and building societies operating in Australia (Donovan & Gorajek, 2011; ABA, 2011).
These figures were approximately half way down five years back, i.e. in December 2005; the major banks had a total assets figure of $ 918 billion and the credit unions and building societies had $ 52 billion worth of total assets (Donovan & Gorajek, 2011). These figures show how much the sector has grown over a span of five years.
MCU Sustainable Banking
Maleny Credit Union Limited (MCU Ltd) is a licensed financial service provider in Australia and is also authorized in inviting public deposits as an independent institution “Authorized Deposit Taking Institution (ADI)”.
Beginning its operations back in the year 1984, MCU has successfully carried out its operations which are mostly community based. With 5,500 members (approx) the institution has managed to increase its total assets to above 60 million dollars (MCU, 2011). There is a wide range of services available to the customers of MCU.
These services include on-call savings accounts, term deposits, lending services, insurance, financial planning service, free car search service and non-cash payment facilities which includes VISA debit cards, e-banking, electronic funds transfer, BPAY and other cheque facilities which are similar to those provided by the conventional banks.
The area of operations of MCU includes Maleny and Sunshine Coast Hinterland (MCU, 2011). There are other financial institutions also where MCU operates, but the operations of MCU are distinguished from others as the institute invests back the amounts or deposits raised from the local community in light of the policies which are designed locally.
This strategy helps MCU in making sure that the capital of the community is not moving out of the area of its operations. The operations and investment of MCU are comprised of:
- Giving loans at the community level with the objective of bringing sustainability in the environment;
- Donating or sponsoring public welfare projects through devoting up to 10 percent of the profit before taxation;
- Helping micro finance groups (MCU, 2011).
Apart from the fact that MCU is a relatively small organization, it has a proactive approach towards working for sustainability in the environment through collaborating with other organizations. In honor of its services, the Sunshine Coast Environmental Council (SCEC) awarded MCU with the “Air Quality Award” in the year 2003 (MCU, 2011).
The objective of this report is to present an analysis of the Maleny Credit Union Limited (MCU Ltd) which discusses the significance and effects of different internal and external factors. The analysis is carried out while using the strategic tools like SWOT Analysis, PESTLE Analysis and Porter’s Five Forces Model.
SWOT Analysis
Strengths
Due to lower interest rates charged by MCU as compared to the rates charged by the banks on the loans given and because of the higher rate of returns offered to those who invest their money with MCU, the company holds a better position in the market in terms of attracting further investment (CSR Credit Unions, 2011).
Due to the deep penetration of MCU in the community where it operates, the union enjoys a stable progress. The fact that MCU hires majority of its staff members from the local community also gives an advantage to the union which banks are unable to grasp (MCU, 2011).
MCU is famous for its service quality among the community. This customer satisfaction is a huge advantage for the company which further ensures the future progress of the union.
The members or the depositors of MCU feel like being part of the organization as they are able to control the activities of the union and have right to vote during the election of the directors for the union. These rights strengthen the relationship between the company and its customers further (CSR Credit Unions, 2011).
The offering of green loans and green products financing allows MCU to enjoy supremacy over its competitors (MCU, 2011).
Weaknesses
Although the existence of credit unions is based upon the very fact that they are to serve communities at large, but due to this limited operational base, MCU’s customers are not able to avail normal banking facilities out of their community areas.
As for example, people feel inconvenience while maintain their accounts with union due to the non-availability of ATM Machines and Branches of MCU in other parts of the country (CSR Credit Unions, 2011).
MCU’s offered products are not very diversified as they are in the case of a banking company. The limited product options for the customers and potential customers may leave them unsatisfied. As for instance, the company does not offer long term commercial mortgage loans (MCU, 2011).
A majority of the credit unions operating within the country lack the necessary resources with which they may offer a wide range of products and services to their customers. MCU also faces a shortage of resources due to the limited area of its operations (CSR Credit Unions, 2011).
Opportunities
Keeping in view the lower interest rates at which the credit unions offer loans as compared to those rates which are generally offered by the banking sector, MCU has an opportunity to expand its operations.
Moreover, the profit rates offered by MCU are much higher than the conventional banks which also offer an opportunity for the MCU to invite more investors or depositors.
Due to the community based operations of MCU, the institution can penetrate further within the community in which it operates and keeping in view the needs and preferences of the local people, it can diversify its services and the financial solutions offered.
Threats
The global economic crisis is the biggest threat to every business concern all over the world. Although Australian financial sector held up better than the financial sectors of other major economies, but still there are fears that the trails left by the economic crisis may affect the financial sector of the country (Hillier, 2010).
The ever increasing intensity of the competition in the Australian financial system generally and in the credit unions particularly, is likely to affect the overall profitability of MCU.
PEST Analysis
Following is the PEST Analysis of the Australian Banking Sector:
- Political
The political conditions are stable in Australia and are supportive for the financial sector. The positive role of the Government can be justified by considering the announcement of the Australian Government to remove the “Guarantee Scheme for Large Deposits and Wholesale Funding” from March 2010 which signified the government’s support for the financial sector (CSR Credit Unions, 2011).
- Economic
Australian economy is a developed and modern economy. According to the estimates made in the year 2010, the GDP growth of the country is 2.7 percent. The rate of inflation recorded in the third quarter of the fiscal year 2010 was 2.8 percent. The unemployment rate in the country is 5.5 percent only. All these figures suggest vibrant economic conditions for the investors and the financial sector (CSR Credit Unions, 2011).
- Social
Following good economic conditions of the country as a whole, the people living in Australia are financially stable and have higher purchasing power parity which is good and motivating for new investors.
Moreover, people living in Australia are well educated and therefore it is suggested that the companies operating in the financial sector shall make sure the provision of information related to their products and services being offered (CSR Credit Unions, 2011).
- Technological
In terms of the quality of research institutions in the country, Australia ranks as the tenth highest country out of 133 countries. The ability of people living in Australia to adapt new technologies is fourth highest among 57 countries observed in this respect (Australian Government, 2010).
These facts signify that the technological development in the country is not only promoted but also accepted by the people of Australia.
Porter’s Five Forces Model
Following is the analysis of the Australian Financial and Banking sector on the basis of Porter’s Five Forces Model:
- Threat of New Entrants
Keeping in view the sound economic conditions in Australia and the opportunities in the banking sector, there is huge attraction for potential investors.
As can be seen in case of credit unions, there are many opportunities for new entrants and along with these opportunities the new entrants have further options to start their businesses, i.e. to start as a conventional banking organization or opt for a non-banking organization startup (Australian Trade Commission, 2011; Argent, 2002).
- Bargaining Power of Buyers
The bargaining power of buyers is however increasing and has a significant influence on the operations of the banks. Although costs for switching have decreased due to the efficient ways of doing business, but the fact that customers’ loyalties are difficult to be maintained have increased the bargaining power of buyers.
- Bargaining Power of Suppliers
The bargaining power of suppliers is theoretically expected to be high in the Australian banking sector due to a finite number of market participants (Unnithan & Swatma, 2001).
However, the limitations enforced upon banks by the perceived bargaining powers of suppliers are overcome by the ability of the banking organizations to operate through other means, such as internet banking and through financial intermediaries (Cronin, 1998; Kotler & Armstrong, 1997).
- Substitutes
The substitutes in the banking sector are readily available due to the diversity brought into the banking sector after inclusion of non-banking entities.
Nowadays there are certain activities related to the banking sector which is carried out by non-banking entities, such as the issuance of credit cards and the sanctioning of loans and other facilities (Kent & Debelle, 1999; Donovan & Gorajek, 2011).
- Competition
There are certain factors which have created a relatively new competitive environment for the banking sector. As for instance, the shift in consumers’ preferences over time, the effects of globalization, innovations and developments due to technological advancements and the inclusion of non-banking organizations in the financial sector are deemed to be the major causes for increasing competition in the industry (Australian Government, 2010).
Conclusion
Analyzing the Australian financial and banking sector by applying three major strategic tools, it is concluded that the economic conditions prevailing in the country are sound and supportive for the existing and potential investors and businessmen.
The role of credit unions in the Australian communities has also been discussed while considering MCU Sustainable Banking, which shows that the potential for credit unions in Australia is huge apart from the lack of diversity in their services and limited areas of operation.
Furthermore, the financial sector of the country is growing and remained stable during the global financial crisis. There is a healthy competitive environment prevailing in the banking sector and the Australian government is dedicated to promote it.
Limitations
The availability of information related to the subject of this report has been the foremost limitation faced by the author. Moreover, there are instances where data pertaining to latest financial year was not available and the author had to make use of the figures pertaining to previous periods.
References
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