The Big Four Banks: The Complete Guide (2024)

Each of the Big Four banks—Commonwealth Bank, Westpac, National Australia Bank, and Australia and New Zealand Banking Group (ANZ)—have a lengthy history, starting life at a local level and then gradually increasing market share by swallowing up smaller rivals during periods of financial turmoil.

The deregulation of the banking sector several decades ago also increased their share of the financial system from around 50% in the early 1980s to around 80% at present.

In 1990, then Labor treasurer Paul Keating introduced the ‘four pillars policy’ under which the government pledged to reject mergers between the big four banks in order to preserve a level of competition. However, that has done little to prevent the takeover of smaller players.

CBA

Once publicly owned, Commonwealth Bank is the youngest of the big four banks, founded by the Australian government in 1911. It initially acquired the State Savings Bank of Tasmania in 1912, then over the decades took over other state banks in Queensland, Western Australia, Victoria and New Zealand, before being fully privatised in 1996. It has since acquired BankWest during the 2008 GFC, as well as financial services firm Colonial and Aussie Home Loans to become the country’s biggest bank today.

The deregulation of the banking sector several decades ago also increased their share of the financial system from around 50% in the early 1980s to around 80% at present

Westpac

Westpac is Australia’s oldest bank, starting life in 1817 under the name of Bank of New South Wales. It was renamed Westpac after acquiring the Commercial Bank of Australia in 1981 followed by smaller deals. Its status as Australia’s second-largest bank was cemented by a mega-merger with St George Bank during the global financial crisis in 2008.

NAB

It was formed in 1982 through the merger of two century-old banks—the National Bank of Australasia and Commercial Banking Company of Sydney. Since then, NAB has acquired and divested banking businesses in the UK and US, as well as financial services firm MLC, and taken over the Bank of New Zealand.

ANZ

ANZ traces its history to the Bank of Australasia, founded in London in 1835, which merged with Union Bank of Australia in 1951 to form the Australia and New Zealand Bank. It took over the English, Scottish & Australian Bank in 1970 to form the present day Australia & New Zealand Banking Group. Since then ANZ has acquired several smaller players including Bank of Adelaide, Grindlays Bank and New Zealand’s PostBank.

The country’s fourth-largest bank is set to get bigger after the Australian Competition Tribunal this week overturned a decision by the competition regulator, allowing ANZ’s $4.9 billion takeover of Suncorp’s banking arm.

Australia’s four major banks are counted among the world’s largest banks by market capitalisation and also rank in the top 25 globally for the safest banks. They are also some of the most profitable in the world.

As the Big Four continue to rake in profits and get bigger, they have increased market dominance and made it harder for smaller banks to compete in the already consolidated industry.

The Big Four account for roughly 75% of market share in Australia’s banking sector. While this concentration is not unique internationally, it is certainly much higher than in many other developed countries.

Some countries where the top five banks account for more than three-fourths of the market include Canada and Sweden. However, among other developed economies, the top five banks only account for roughly 40% market share in Germany, the US and UK, and around 50% in France and Japan.

The impact of this concentration has been heightened in the case of Australian banks because of their focus on mortgage lending, which generally tends to be more profitable than other forms of lending. A two-decade boom in property prices has resulted in Australia’s banks having more exposure to real estate than their counterparts in other countries.

While mortgages account for more than 60% of all bank lending in Australia, this proportion ranges between 20% and 35% in other developed markets like the US, UK and Germany.

Australia’s major banks have been an investor-favourite for years because of their strong profitability and the hefty dividends they generate.

The Big Four banks delivered a record full-year profit of nearly $32.5 billion in FY2023, a 12.4% improvement over the previous financial year. The Commonwealth Bank accounted for the largest share of this windfall at $10.2 billion, followed by NAB at $7.7 billion, ANZ with $7.4 billion and Westpac at $7.2 billion.

The biggest contributor to surging profits was an increase in their margin on loans. The ‘net interest margin’— which is the difference between the interest rate banks pay for money and what they receive on lending that money—has expanded steadily as the Reserve Bank lifted interest rates over the past 18 months to an 11-year high of 4.35%.

According to RBA data on bank profitability, the Big Four banks averaged aggregate half-year profits around $15 billion over the last two years. By comparison, smaller Australian banks have aggregated six-monthly profits of around $2.25 billion over the same period.

Analysts say smaller regional banks are typically unable to compete with the Big Four, mostly because they can only access more expensive funding and have smaller marketing budgets. While bigger banks generate returns on equity above their cost of capital, smaller banks face a funding and operating cost disadvantage.

To get a sense of the funding handicap, consider the vast difference in household deposits held by major and smaller Australian banks at the end of FY22.

Household Deposits Held*

Australia’s four major banks have long faced allegations of anti-competitive behaviour and misconduct, particularly by their financial planning and wealth units. This has resulted in several investigations by the Australian Securities & Investment Commission as well as Senate inquiries over the years.

In 2017, the Australian government was forced to set up the Hayne Royal Commission to inquire into and report on misconduct in the banking, superannuation, and financial services industry. This followed revelations in the media of a widespread culture of greed and instances of money laundering.

The year-long inquiry found that Australia’s big banks and financial institutions had repeatedly broken the law and put profits before people. It made 24 referrals for misconduct involving potential civil and criminal penalties for CBA, NAB and ANZ. Australia’s financial intelligence watchdog later sued Westpac for more than 23 million breaches of money laundering and counter-terrorism laws.