Finance and insurance is the third largest sector in Australia's economy, generating almost 8% of GDP. It is the second largest contributor to the services sector of the NSW economy, and the third largest overall, behind property and business services and manufacturing, as measured by total factor income.
In 2005-06, the finance and insurance industry in Australia contributed A$66.4 billion or 7.7% of Australia's total factor income from all industries.
In NSW it accounted for 46.4% of the total finance and insurance industry revenue in Australia. It generated a total income of A$31 billion in 2005-06, representing 10% of income across all industries. Between 1999-2000 and 2005-06, the NSW finance and insurance industry achieved nominal growth of more than 9% per annum.
Australia's financial markets almost doubled in turnover between 2001-02 and 2005-06, reaching A$100 trillion, with an annual average growth rate of 19%. While growth is spread across Australia's domestic market, key growth areas are foreign exchange, equities, futures and managed funds, particularly pension funds, and services to finance companies.
Australia has one of the largest pool of investment fund assets in the world and the largest in Asia, with consolidated assets at the end of June 2006 of A$1096 billion. Superannuation funds account for 70% of this volume and are expected to triple in the next 10 years.
Foreign exchange trading in 2005-06 was more than double its annual turnover in 2000-2001. The daily average value of turnover in all currencies reached A$220 billion in June 2006, more than half in non-AUD transactions.
Sydney is the head office location of the Reserve Bank of Australia, the Australian Stock Exchange, the International Banks and Securities Association of Australia and the Australian Financial Markets Association.
Significant employer
NSW leads the nation in employment growth in financial services. In the period 1995-96 to 2005-06, 32,000 of the 58,000 jobs created in Australian financial services were in NSW. Financial services employment grew by almost 25% in NSW compared with 14% in the rest of Australia.
The finance industry in Australia employs 392,500 people (as at November 2006) and many more in ancillary industries including legal and ICT services. NSW employs 43% (or 167,500) of Australia's total finance and insurance industry.
Average weekly earnings in financial services are 22% higher than the total workforce, with strong productivity growth in the past five years.
Employment costs in Sydney's finance industry are highly competitive compared with other global centres in the region. Remuneration can be as much as 35 - 50% lower than countries such as Japan, Germany, the United Kingdom and the US.
Industry growth
Financial services industry growth is supported by a world class regulatory environment, with Australia recently rated by the International Monetary Fund as having one of the most financially sound markets in the world.
The State's multilingual, well educated workforce is a key growth factor for the future of financial services in NSW. As well as attracting overseas companies needing a base for high value operations and technology support functions, NSW's skilled workforce has enabled Sydney to become a hub for companies specialising in structured finance, the business of pooling assets and placing them in externally managed trusts.
Using Sydney as a development centre for new products and services is another expanding role made possible by the skills base available here. Sydney's high-skilled and creative workforce differentiates it as a place to conduct complex operations complementary to activities in locations such as India, China and the Philippines.
Funds management and foreign exchange trading are expected to fuel continued growth in finance and banking in NSW. Australia's funds management sector has grown strongly, driven by the nationally mandated retirement income scheme. The assets of Australia's superannuation industry are expected to exceed A$2 trillion by 2014, with growth of 13.5% a year over the next decade. Growth in Australia's pool of managed funds has created strong demand for international funds products, and is a major drawcard for global funds management groups.
Export growth in financial services in the past 10 years has resulted in NSW becoming a net exporter of financial services, with a positive trade balance of A$188 million in 2005-06, a change of A$328 million from 1994-95. NSW financial services exports have increased by 75% over the past 10 years, growing at an average annual rate of 6%.
Business reputation and probity
Sydney is at the centre of Australia's financial reputation for stability and solvency. Australia's long history of probity provides a beneficial environment for financial businesses.
The 2006 IMD World Competitiveness Yearbook ranked Australia eighth in the World for the efficiency in the delivery of banking and financial services to support business. Australia also ranked in the top 10 countries for:
- stock markets providing adequate financing to companies (4th)
- shareholders' rights are sufficiently protected (3rd)
- finance education meets the needs of enterprises (5th)
- transparency of financial institutions (7th)
- flow of credit from banks to businesses (7th)
- central bank policy is a positive impact on economic development (3rd).
In addition, the soundness of the Australian financial system, as measured by Moody's Bank Financial Strength Index, is rated as one of the highest in the world.
Banking
Banking is the dominant sector of the Australian financial industry, accounting for 50% of total assets.
Sydney is the Australian head office location for 80% of banks operating in Australia, including eight out of the 10 foreign subsidiary banks in Australia and the 10 largest investment banking groups. Australia's banking system has the lowest overall risk in the Asia Pacific, according to Standard and Poor's.
Foreign exchange
Exploiting its time zone advantage, Sydney provides a deep and liquid foreign exchange market. Australia's FX market has a turnover of about A$195 billion a day, almost half in Australian dollars. The local foreign exchange market is the seventh largest in the world by turnover, and the Australian dollar is the fourth most actively traded currency globally.
Equities
The Australian Stock Exchange (ASX), based in Sydney, is ranked the third largest in the Asia Pacific region (measured by market capitalisation of domestic shares) behind Japan and Hong Kong SAR, and the eighth largest in the world.
In 2005, the value of turnover in shares on the ASX increased by 25% on the previous year, reaching A$886 billion. The number of equity transactions on the ASX increased by 34% during the year, to more than 25 million, an average of almost 100,000 transactions per day.
Australia is also a world leader in share ownership. More than half of the Australian adult population now owns shares directly or indirectly.
Futures
In 2005, the Sydney Futures Exchange consolidated its position as one of the Asia Pacific's largest financial futures and options exchanges. During the year, 64 million futures and options were traded, an increase of 18% cent on 2004.
Three-year bond contracts accounted for 42% of all futures contracts by volume in 2005, making them the most liquid medium-term bond futures contract in the Australian region.
Managed funds
Australia has the largest pool of managed funds in the Asia Pacific (well ahead of Japan and Hong Kong SAR) and the fourth largest in the world (behind the US, France, and Luxembourg) and this continues to grow steadily. Australia has lifted its global market share in managed funds from 2.9% in 2004 to 3.9% at the end of 2005.
Because of compulsory superannuation (pension) fund contributions, total consolidated funds under management are growing strongly - breaking through the A$1 trillion mark in March 2006 and up 15% from December 2005 to December 2006. Over the past decade, managed funds have grown at a compound annual rate of 12%. Consolidated funds under management in Australia are expected to reach A$2.4 trillion by 2015.
Strongest growth has been in superannuation assets (up 20%to A$597 billion from December 2005 to December 2006), followed by public sector unit trusts (up 14% to A$237 billion). Life insurance office funds rose 6% to A$209 billion.
Seven of Australia's top 10 funds managers are in Sydney and accounted for almost 40% of the funds management market as at December 2006.
See Innovation in the financial services sector.