Management Task, Australian Bank
Bendigo and Adelaide Bank is the fifth largest bank in Australia. The bank has a well-established system that has seen the bank remain profitable for the past 158 years. The paper discusses management of the bank whilst focusing on the political and legal environment and how this particular environment has impacted on the bank’s profitability. The paper shall further discuss the effect of new regulations as well as the role of the government in deregulation of financial institutions. The paper shall later discuss the Bank’s Corporate Social Responsibility, ethics and its values.
Bendigo and Adelaide Bank has been operational for the past 158 years in what the bank refers to as ‘a long and proud history’ on their website. In 1858, the bank found its existence after stepping up to provide a solution after the sudden surge of migration. Despite not falling on the category of the big projects managed by our ancestors such as Pyramids, the Bank offers a long history on management environment and structures over the years.
After the formation of the bank in 1858, the bank proceeded to open the South Australian’s Hindmarsh Society under the principles of home ownership. Since then, over 80 organisations have joined up to create the Bendigo and Adelaide Bank Group with over 99,000 shares. The bank is currently Australia’s fifth largest bank with a market capitalisation of over $4.6 billion and more than 7,200 staff helping more than 1.6 million customers (Bao, 2017).
General external environment
Bendigo and Adelaide Bank continues to enjoy relatively a sound financial status. On 31st December 2017, the bank made an after tax statutory profit of $231.7 million for a period of six months in operation. The bank further directed issuance of cash earnings per share at 46.8 cents indicating a 3.3 percent increase.
External environmental issues in the Australian industry are;
Changing demographics. The Australian population is becoming older and urbanised, more diverse and richer. The population has further become more interconnected across national boundaries. However, there is still less distinction between wealth and banking.
Changing technology presents an opportunity for banks to leverage data, analytics and communication to create richer, more targeted value propositions for specific micro segments or individuals (Pwc.com.au. 2018). The changing consumer behaviour indicates a trend where consumers are law abiding, tolerant, trusting, confident and better informed. The Australian consumer has increased the number of transactions online with communication on social media channels also on the rise. The bank under study has continued to win awards on innovativeness. The bank continues to give innovative services to its clients such as the Bendigo connect and the Farm Management Deposit offset account. Most of the innovative features have been geared towards connecting the bank to the rural folks who form the majority of consumers. Other innovations such as Salvation Army Tap to donate and Share Trading platform continue to place the bank among those reaping from the benefits of online banking. The SIDA, or Social Investment Deposit Account aims at generating income for organisations committed to positive change. All these innovations have made the bank win various awards such as Mozo, B Corp certification Roy Morgan among other awards.
Nonetheless, the paper opts to discuss the political/ legal environment in Australia and how the equivalent has impacted on the performance of the bank. The Australian external environment is however under pressure with the royal commission poised to ‘shake up the bad apples from the tree.’ The amount of hurting on the economy solely depends on the banks sound nature of the banks. The royal commission shall have investigatory powers as well as adjudication powers. For instance, the commission can exercise to issue warrants or subpoena documents. With banks expressing their initial enthusiasm for the commission, the wide powers accorded to the commission remain a subject of discussion (Bell, 2017).
Interventionist governments continue to dictate the conduct of bank business in their respective countries. The regulators and Central banks have targeted the macro economy with the banking sector being one of the largest casualties (Www2.deloitte.com 2018). The effects have had far reaching consequences such as subdued macro economy as financial institutions are repressed leading to uncertainties (Pwc.com.au. 2018)
The political and legal environment
The regulatory framework in Australia has three main elements and was introduced on the 1st of July 1998 in response to the recommendations of the Financial System Inquiry or what is popularly known as the Wallis committee, which consisted of three agencies with specific functional responsibilities.
The Australian Prdenatia Regulation Authority has the responsibility for prudential supervision whiles the Australian Securities and Investments Commission (ASIC) having the responsibility to market consumer protection and integrity across the financial system. The Reserve Bank of Australia on the other hand is responsible for monetary policy, overall financial system stability and regulation of the payments system.
The APRA, (Australian Prudential Regulation Authority is an integrated prudential regulator that is responsible for deposit taking institutions, life and general insurance and superannuation and friendly society
Institutions such as our chosen institution are regulated by APRA under a single licensing regime and are covered by ‘depositor protection’ provisions provided under the Banking Act 1959. The legislation gives APRA authority toact in the interests of the depositors with the power to revoke licenses, make prudential standards or issue enforceable directions and appoint investigators or statutory manager to make authorised deposit-taking institution.
The ‘depositor protection’ provisions under the Banking Act 1959 further grant the depositors a first claim to the assets of an ADI in wind up. Moreover, all ADIs are required to hold assets in Australia at least equal to their deposit liabilities in Australia. Nonetheless, the provisions have little effect on guaranteeing the depositor’s funds with depositor’s having no recourse to APRA or the Government. In other words, where financial weaknesses of a life company, friendly society or superannuation fund, general insurer may have a detrimental effect on the interests of the policy holders or members, APPRA is mandated to intervene if it deems fit on the management of the troubled institution. The Minister for Revenue and Assistant treasurer are also mandated if they deem fit to compensate members of a fund if losses are occasioned due to fraudulent conduct or theft on public interest grounds (Bell, 2017).
On the other hand, the Australian Securities and Investments Commission has mandate to administer and enforce legislative provisions on various activities relating to financial institutions apart from lending. ASIC has the sole objective of protecting markets and consumers from deception, unfair practices and manipulation. Thus, by doing this, ASIC promotes confident participation in the financial system. Moreover, apart from promoting honesty and fairness in company affairs, ASIC develops guidance and policy about the legislation it administers monitors, licenses compliance by participants in the financial system, and finally provides comprehensive and accurate information on corporate activity and companies (Bao, 2017.
The Reserve Bank of Australia on the other hand has the responsibility for monetary policy and for overall financial system stability. The RBA is not mandated to protect the interests of the bank depositors or other creditors of banks. The RBA is tasked with dealing with the threats relating to financial stability that have the potential to spill over to economic activity impacting negatively on investor and consumer confidence. The RBA is the lender of the last resort in the event banks need emergency liquidity support. As such, the RBA makes provision of funds to the whole market as well as financial institutions under the supervision of APRA (Bao, 2017).
The Royal commission and its effect on the Banking sector
As the paper had indicated earlier, the Banking royal commission will shake the ‘bad apples’ of the tree, giving Australia a clean banking sector in the long run. However, in the short term the collateral damage would hurt the banking sector. The impact on individual banks will be determined by the bank’s current situation. With banks finding governance under APRA, critics argue that banks have operated in a comfortable regime for too long arguing that the APRA is not fierce enough. Banks have as a result made huge profits (Bell, 2017).
The ACCC (Australia Competition and Consumer Commission) has argued that there is less competition in the banking sector with oligopolies characterised by the large banks. The big banks have thus been argued to have a significant influence on prices, products and other conditions. Currently, the Common wealth bank for instance made an operating profit of almost $10 billion in the year 2016/2017. The whiff of scandal has opened the rid on industries providing financial services such as the Insurance, financial advice and lending industries.
The grilling of financial executives and watching them on the stand may have a ripple effect on financial institutions with share prices likely to fall or rise.
The Hayne Royal commission has exposed competition in the banking sector with political and regulatory scrutiny have made the banking environment complex. Moreover, the growing web of regulations and demands continue to cloud the banking environment. The banking industry argues that measures by the APRA have been applied in a blanket fashion aiding the bigger traders and locking out small traders.
Impending bank levy
After South Australia announced the impose of a bank levy, the Western Australia may consider following the suit. The banks have been exposed to political vulnerability following a series of political misdoings hard to comprehend. With banks operating under the main aim of making profits, they further have a role to make the finance sector stable. The banks further have made decisions such as failing to lend to prospective investors based on certain issues.
Real life Application of the Political/ legal environment impact on Bendigo and Adelaide Bank in the period 2017
General real life application of the chosen environment on the Bank 2017
Issuing of Profit Warnings by Bendigo and Adelaide Bank
In October 2017, Bendigo and Adelaide Bank issued a profit warning due to various factors. The issuance of the warning saw the share price tumble 4.7% to $ 11.38. The profit warning issued by the Managing Director Mike Hirst noted that the political and legal environment had slowed down the lender’s growth in the year. Specifically, the Managing Director argues that the macro prudential actions by the APRA (refer to the earlier discussion on the roles of the body) had forced lenders to a slam. Mike noted that the actions led to a braking of investor and interest only lending. In his argument, Mike noted that the reaction by the bank was necessary to ensure that the bank hit the APRA targets for the period granted by APRA. The regulations effect was the slowing down of the momentum the bank had experienced over time with the balance sheet of the bank expected to be flat in the first half of the year (Bendigo and Adelaide Bendigo and Adelaide Bank announces end year results n.d.).
One of the other factors that influenced the bank from the legal and political environment was the introduction of removal of ATM fees by some large banking institutions mainly foreign. The Managing Director, Mike Hirst noted during the company’s AGM that the move would lead to a negative impact on the balance sheet of the banking sector. Mike noted that fees and charges would negatively influence the income of banks noting that the bank was not immune to such moves. According to the bank’s official website, the APRA’s lending caps led to a restricted lending growth across the retail which was 7.7% for the given year. The marging expansion was also strong.
The bank however had some positives in the year ending 2017 with the disciplined approach to front book mortgage by the bank leading to a steady flow of income. The deposit gathering by the bank further provided a footing for the bank by ensuring that the bank exploited growth opportunities with their flexible lending abilities (Bendigo and Adelaide Bendigo and Adelaide Bank announces end year results n.d.).
On regulatory issues, the bank is well capitalised on the risk of their balance sheet with their common Equity Tier Capita sitting at 8.27%. The bank’s ability to generate capital organically has made the bank achieve APRA’s strong capital benchmarks within the required period.
The bank is also making progress towards Advanced Accreditation as it awaits directions from the APRA on risk-weighted assets. The program has however improved the bank’s risk management capability and has been considered as an important step to ensure that the bank can operate comfortably on a level playing field with other major financial institutions.
Bendigo and Adelaide Bank’s community model has delivered tangible benefits for the communities with the sector accounting for over 9% of the balance sheet growth in the financial year ending 2017 (Bendigo and Adelaide Bendigo and Adelaide Bank announces end year results n.d.) .
Corporate Social Responsibility Bendigo and Adelaide
The lender has been commended for having one of the best Corporate Social Responsibility programs in Asia. In fact, some argue that the bank has the best Corporate Social Responsibility model in Asia. According to the Bank’s official website, the role of the bank is to feed prosperity in the community and not off the community. Bendigo has found a way of working with communities by tacking social conscience to their business strategy. The bank’s main argument is that you cannot run a successful enterprise in an unsuccessful community. The bank has thus obligated itself in asking communities prosper by strengthening the markets and supporting and building a sustainable market structure (Bendigo and Adelaide Bank, In the Community report, n.d).
To date, the bank has funded several businesses. The bank’s model is based on initially listening to the local leaders and their view on the growth or the absence thereof of the community. The bank then analyses and examines the community’s problem before analysing how they can help the community based on the preceding step.
In the year 2005, the company launched their charitable arm known as the Community Enterprise Foundation. The foundation is tasked with creating a pool of funds that are then geared towards working to build stronger Australian communities through funding programs that fund the youth, families, health, education, arts, environment and various needs by the society. The bank notes that most of the activities are not easy. However, communities have a role and capacity to influence the activities from within and help the local communities. In retrospect, the bank analyses how the local communities can help banks (Bendigo and Adelaide Bank, In the Community report, n.d). For instance, whereas in the 1990’s few people argued that local communities would not have a significant impact on banks, local communities currently run successful branches that contribute a lot to the building of better communities.
The bank continues to have a significant imprint on the activities of the local community be it in rural, sub urban localities or regional locations (Bendigo and Adelaide Bank, In the Community report, n.d). The Community Service Banking and the Community Enterprise foundation remain the key Corporate Social Activities by the bank.
On community Sector Banking, the bank has partnered with other key players to form a joint venture company that enhances the capacity of Australia’s not-for-profit sector using financial services as the key driver. The model is based on Community Bank Model by Bendigo that has proved successful over time. The model operates under Bendigo’s banking authority and is a branchless operation with key operators such as ACOSS, Brotherhood of St Laurence, NSW Federation of Housing amongst other key players. The 19 participants have formed a company that seeks to contract for Bendigo and provide banking services for member companies with the non-state actors sharing the profit margin (Bendigo and Adelaide Bank, In the Community report, n.d).
Ethics Bendigo and Adelaide Bank
The Bendigo and Adelaide Bank works under a code of conduct. In practice, Banks and other institutions are supposes to make provisions for ethical guidelines that guide their employees. In other words, businesses are required to act in an ethical and socially responsible manner to the society. Company’s may opt a company-specific standard or a program that differentiates ethical behaviour and social responsibility. The Bendigo Bank initiated the concept of community banking that proved effectual in small communities who suffered when big financial institutions left their operating zones. It has been an expectation by consumers that their institutions will operate in an ethical environment. As mentioned earlier, there are two options an organisation can opt, company specific or industrial standards.
Bendigo’s approach is one that has formulated a code of conduct. The code of conduct is institution specific that instils the company’s values and culture. One of the company’s valued cultures is one that upholds integrity in the conduct of business. The code provided a greater depth to certain issues that require standards of ethics. The bank provides that if a team player is not certain of what they are required to do, it is prudent that they raise the concern with a team leader. The rule of the thumb under the code of conduct is whether one committing the act would feel comfortable committing the act. If not, the activity would be a breach of conduct (Bendigo and Adelaide Bank code of Conduct, n.d.).
The culture and values of the bank
The bank’s culture and values are envisioned under the bank’s vision and values. The values that are supposed to reflect what the bank does on a daily basis are;
The bank envisions the running of the entity as one unit that should work together to encourage diversity and respect through unique contribution of each and every person.
Under this value, the bank envisions a situation where it creates a culture of trust, openness and fairness.
The bank believes in sustainable success where it seeks to provide feedback and a better way to solve problems.
The bank understands and delivers its success based on the success of others
The bank believes in leading by example
The bank is proud of what they do.
Moreover, the diversity of the workforce is a reflection of the bank’s inclusiveness. The bank has celebrated activities such as Diwali, the Hindu Festival of lights with the aim of building inclusive culture. The bank has further celebrated the Harmony day in a bid to create a culture of inclusivity (Bendigo and Adelaide, Corporate governance).
Bendigo and Adelaide Bank is the fifth largest bank in Australia. The bank has mainly relied on a community based banking system to drive its growth. The bank has however found it difficult to keep up with the changing external environment especially the legal and political environment. One of the bank’s difficult operating systems has been the inclusion of new regulations by APRA. The introduction of the regulations has led to the issuance of profit warnings by the bank, leading to the share price to tumble. The bank has however capitalised on its strengths to remain afloat.
Bendigo and Adelaide Bank [online] Available at https://www.bendigoadelaide.com.au/public/in_the_community/index.asp accessed on 8th April 2018
Bendigo and Adelaide bank [online] Corporate governance available at https://www.bendigoadelaide.com.au/public/corporate_governance/policies/code_of_conduct_policy.asp accessed on 8th April 2018
Bendigo and Adelaide bank [online] In the community report available at http://bendigoadelaide.com.au/public/in_the_community/in-the-community-report.asp accessed on 8th April 2018
Bendigo and Adelaide Bank [online] available at
://www.bendigobank.com.au/public/news-and-media/news/news-archive/bendigo-bank-launches-an-ethical-investment-first Accessed on April 8th 2018
Bendigo and Adelaide Bank [online] Bendigo and Adelaide Bank announces full year results available at
https://www.bendigobank.com.au/public/news-and-media/news/news-archive/bendigo-and-adelaide-bank-announces-strong-full-year-result accessed on April 8th 2018
Bell, S., 2017. Great Ideas of Central Banking: Values, Ideas and the Transformation of Central Banking and Monetary Policy in Australia. In Government Reformed (pp. 35-54). Routledge.
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Www2.deloitte.com. (2018). [online] Available at: https://www2.deloitte.com/content/dam/Deloitte/au/Documents/financial-services/deloitte-au-fs-future-financial-services-impact-australia-030516.pdf [Accessed 7 Apr. 2018].
Bao, H., 2017. Evaluation of Pre and Post Demerger-Merger Performance: Using ABN AMRO Bank as an Example. International Journal of Economics and Finance, 9(2), p.196.