Measuring Competitive Strengths In The Banking Industry Using Relative Profit Difference (RPD) Analysis

The Use of RPD Analysis to Measure Competitive Strengths

The Australia and New Zealand Banking Group Limited, here in after to be referred to as ANZ, is one of the largest banks in Australia. In fact currently it is ranked third after the Commonwealth and Westpac Banking Corporation in term of market capitalization. It largely operates in Australia and New Zealand. Westpac Banking Corporation (Westpac) is the second largest bank in Australia in terms of market capitalization behind Commonwealth Bank of Australia. Headquarter of Westpac is in Sydney, New South Wales (NSW). Suncorp Group is a Brisbane based organization that provides services in finance, banking and insurance related matters. Macquarie is finance and baking organization listed in Australia with operations and services spreading in different parts of the world. In order to measure the competitive strength in an industry, different and alternative methods have been suggested. In fact still number of theories are being developed and empirical work is been conducted to introduce new and improved methods to measure relative strengths in different industries.

Relative Profit Difference (RPD) analysis is one such method that is used to measure the competitive strengths in different industry. A detailed analysis of RPD and empirical investigation on the competition between four above mentioned banks shall be conducted with the objective of measuring competitive strengths in these banks. Boone (2008) introduced the approach to the world where the relative profit difference can be used to measure competitive strengths in an industry. According to Boone (2008) the efficiency of an organization will determine the profitability of such organization. Even under extreme competitive scenario business organization will be able to manage its profitability level by improving its efficiency.

Kar, A.K. (2016) has defined that the RPD analysis is effective in the context of Equilibrium market condition where fair number of firs operating under perfect oligopoly market. Thus, the RPD analysis will not be effective in any other market situation and will not provide the actual strengths of competition in a market.

RPD approach was developed and suggested by Boone (2008) to measure competition in an industry. The approach was suggested in the context of an industry where firms can enter and compete despite differences in efficiency. The RPD approach assumes that initially firms are unsure about the decision of whether to enter the market or not. However, once the firms decide to enter the market, they look to maximize their profits. According to the theory an equilibrium profit is established where the profit of the firms in the industry is directly related to the efficiency of the firm. Thus, the RPD approach establishes that a firm in an industry where free competition exists the firm’s profitability will be equal to its efficiency (Abel, Khobai & Le Roux, 2017).

Effectiveness of RPD in Measuring Performance of Firms in Multi-Firm Oligopoly Markets

Relative Profit Difference approach is a technique developed by Boone (2008) for measurement of competitive strengths of an industry. The approach is definitely effective but only in equilibrium condition under multi-firm oligopoly market as explained by Kar, K.A. (2016). In this case the industry is banking and financial sector in Australia. The shortcoming of the RPD approach in this specific industry is that the banking and financial sector in Australia can hardly be defined as multi-firm oligopoly market. Neither there is equilibrium condition in the market place.

Since time in memorial scholars are looking to develop better methods to measure the strengths of competition in an industry with significant results to show their efforts. RPD approach of Boone (2008) is one of such approach that provide a different scope and measurement technique to measure the competitive strengths in an industry. This approach definitely helps in assessing the relative strengths of firms in an industry. However, to measure the competitive strengths of an entire industry with relative profit difference approach is definitely a challenging task and requires impeccable methodology to collect data on the basis of which analysis shall be conducted to form a particular conclusion. Apart from that all underlying variables must be present and assumption must be correct in order to measure the competitive strengths of an industry effectively.  

According to Boone (2008), firms competing in an industry different in efficiency. The theory explains that there are mainly three different levels of efficiencies within which a firm operate and the profitability of the firm is dependent on the efficiency level of the firm. The following equation is used to measure the efficiency levels:

The profit difference between the most efficient and least efficient firm in an industry, represented by p, is calculated by inverse Relative Profit Difference (RPD) by using the following formula:

According to Boone (2008) the increase in intensity in competition in an industry has an inverse relationship with p, RPD. Thus, with increase in intensity in competition the term p falls. The logic behind the argument of Boone (2008) is that as an industry becomes more and more competitive the firms operating in the industry are punished even harshly for not being at the maximum efficiency level. In order to establish the relationship between relative profit difference and normal profits in an industry, established in n, the following equation has been used by Boone (2008):

Though the theory is quite straight forward in its logic with efficiency as the determinant of profitability of firms in a competitive industry however, collecting variables and conducting the RPD empirical investigation requires extensive use of data of firms operating in an industry (Kar, 2016). In order to calculate the normalize profit of an industry the following sample points shall be constructed:

Challenges Associated with Measuring Relative Profitability of Firms in an Industry

How the financial performance of 4 banks have affected over the years and is there a direct connection between the changes in financial performance of these banks and the competitive strengths of the industry?

The data shall be collected from the financial statements of these banks to evaluate the changes in the key performance yardsticks of these banks such as revenue, profit and others to explain the impact of competition in the market. The RPD analysis shall be conducted to calculate the relative difference in profits of these entities over the years and how the competition in the industry has influenced the performances of these banks.

Taking into consideration the approach that RPD methodology used to measure the competition in an industry a detailed investigation of the financial performance of the four banks, i.e. ANZ, Macquarie, Westpac and Suncorp, shall be conducted with specific focus on accounting and financial reporting aspects of these banks.

ANZ:

In order to investigate the financial performance of ANZ over the last few years the income statements of the company for last few years shall be evaluated. A simple evaluation of the income statements of the company over the years shall be helpful in assessing how the bank has performed over the years. However, in order to analyse the competitive performance of the bank a comparative analysis of the bank’s performance shall be conducted with the performance of other three banks.

Simple analysis of income statements of ANZ:

ANZ INCOME STATEMENT
AUD in millions	2014-09	2015-09	2016-09	2017-09
Gross Revenue:
Revenue from interests	29,524.00	30,526.00	29,951.00	29,120.00
Gross interest revenue	29,524.00	30,526.00	29,951.00	29,120.00
Less: Interest expense
Interest expense	15,714.00	15,910.00	14,856.00	14,162.00
Income net of interest expenses	13,810.00	14,616.00	15,095.00	14,958.00
Revenue other than interests
Fess and commission received	3,011.00	3,170.00	3,053.00	2,863.00
Income (others)	3,942.00	2,973.00	2,980.00	3,916.00
Non-interest revenue in total	6,953.00	6,143.00	6,033.00	6,779.00
Net revenue	20,763.00	20,759.00	21,128.00	21,737.00
Credit loss provisions	986.00	1,179.00	1,929.00	1,198.00
Noninterest expenses
Expenses for compensation and benefits paid	5,088.00	5,479.00	5,541.00	5,178.00
Expenses on technology and communication equipment	690.00	730.00	734.00	911.00
Fees paid to professionals	253.00	360.00	450.00	469.00
Amortization costs	89.00	88.00	83.00
Cost of merger, acquisition, and restructuring	113.00	31.00	278.00	62.00
Extraordinary charges	43.00	17.00	27.00
Other expenses	2,050.00	2,358.00	2,742.00	2,761.00
Total expenses (Non-interest)	8,326.00	9,063.00	9,855.00	9,381.00
Earnings from continuous operations before tax	11,451.00	10,517.00	9,344.00	11,158.00
Provision (benefit) for taxes	3,025.00	3,026.00	2,458.00	3,206.00
Other income (expense)	(1,155.00)	2.00	(1,177.00)	(1,546.00)
Net income after tax	7,271.00	7,493.00	5,709.00	6,406.00
Preferred dividend	6.00	1.00
earnings available to common shareholders	7,265.00	7,492.00	5,709.00	6,406.00

The above statements include items of income and expenditures of ANZ of last four years. Taking into consideration the above information a simple analysis on the movement of three important yardsticks to evaluate how the competition in the banking industry has affected the performance of the bank. The four key yardsticks that have been used to measure the impact of competition on the performance of the banks are gross revenue from interests, net interest revenue, Earnings from continuous operations before tax and net income. The table below contains the details regarding how these four performance yardsticks have changed over the years.

AUD in millions	2014-09	2015-09	2016-09	2017-09
Gross interest revenue	29,524.00	30,526.00	29,951.00	29,120.00
Increase in gross revenue / (Decrease)	1,002.00	(575.00)	(831.00)
Income net of interest expenses	13,810.00	14,616.00	15,095.00	14,958.00
Increase in net interest revenue / (Decrease)	806.00	479.00	(137.00)
Earnings from continuous operations before tax	11,451.00	10,517.00	9,344.00	11,158.00
Increase in net interest revenue / (Decrease)	(934.00)	(1,173.00)	1,814.00
Net income after tax	7,271.00	7,493.00	5,709.00	6,406.00
Increase / (decrease) in net income	222.00	(1,784.00)	697.00

Gross revenue from interests of ANZ has been stagnant since 2014 as can be seen from the above table. In 2014 the bank earned a gross revenue of $29,524 million which increased in the very next year to $30,526 million only to move downward by the end of 2016 to $29,951 million. In the year ending on June 30, 2017 the bank earned a gross revenue of $29,120 from interest revenue indicating further decrease in the amount of revenue earned. Thus, assuming that the RPD approach is relevant it can be said from the gross revenue of the bank that the efficiency of the bank has neither dropped nor increased. The bank has managed to hold on to its share in the market despite competition in the industry. Net income of the bank in 2016-17 has been $6,406 million compared to $7,271 million of 2013-14. This definitely indicates that though the bank has managed to hold on its market share in the industry however, the increase in cost of operations due to ever increasing competition I the market has eat into its profit over the years. The graph below will explain the movements in four key competitive and performance indicators of the ANZ bank.

Comparative Analysis of the Financial Performance of Four Major Banks in Australia

As can be seen that though the gross revenue of the bank has remained more or less same over the years the other performance yardsticks of the company have moved significantly.

Macquarie Bank:

Similar to the income statement analysis conducted on ANZ the following extracts of income statement of the company would indicate the performance of the bank and how the competition in the industry has affected the efficiency and performance of the bank. The statement below contains items of revenue and expenses of the bank since 2014 to 2017.  

MACQUARIE GROUP LTD   INCOME STATEMENT
AUD in millions	2014-03	2015-03	2016-03	2017-03
Revenue from interests
Gross interest revenue	4,611.00	5,009.00	5,461.00	5,138.00
Less: Interest expense	4,611.00	5,009.00	5,461.00	5,138.00
Interest expense	2,906.00	2,917.00	3,182.00	2,953.00
Income net of interest expenses	1,705.00	2,092.00	2,279.00	2,185.00
Operating expenses
Expenses for compensation and benefits paid	3,736.00	4,143.00	4,244.00	4,379.00
Expenses on technology and communication equipment	298.00	307.00	327.00	571.00
Amortization and depreciation	66.00	95.00	61.00	35.00
Other special charges		222.00	173.00
Other expenses	(4,100.00)	(4,545.00)	(4,854.00)	(5,158.00)
Income before income taxes	1,705.00	2,092.00	2,279.00	2,185.00
Income taxes	827.00	899.00	927.00	868.00
Other income (expense)	387.00	411.00	711.00	900.00
Net income	1,265.00	1,604.00	2,063.00	2,217.00
Net income available to common shareholders	1,265.00	1,604.00	2,063.00	2,217.00

One of the positive signs for the bank is that the bank has managed to maintain sustainable growth in its gross revenue from interests. In analysing the impact of competition in the market the most important fact that is considered is the ability of an organization to earn revenue. RPD approach assumes that the profitability of an organization in the industry is directly related to its efficiency. Thus, in free market where the entry and exits of firms are common the ability of an organization to earn revenue and profit from its business operations would be directly proportionate to its efficiency. The bank has earned a gross revenue of $5,138 million in the financial year ending on June 30, 2017 compared to $4,611 million in 2014. Thus, despite the competition in the industry the ability of the bank to generate revenue from business has remained intact. The income before taxes of the bank has also improved with each passing year. In 2014 the bank managed to earn $1,705 million in earnings before taxes. In 2015 the bank managed to increase its earnings before taxes to $2,092 million with further increase to $2,279 million in the next year ending on June 30, 2016. However, in 2017 the earnings before taxes has reduced a bit to $2,185 million. Considering that the RPD approach of Boone (2008) is effective then the performance yardsticks of the bank indicate that the competition in the industry has no adverse effects on the efficiency of the bank.

Taking into consideration the key performance indicators such as gross revenue from interests, net interest revenue, income from continuous operations before tax and net income lets analyse the impact of competition on the performance the bank. The table below contains the calculation of movement in these key indicators over the years.

AUD in millions	2014-03	2015-03	2016-03	2017-03
Gross interest revenue	4,611.00	5,009.00	5,461.00	5,138.00
Increase in gross revenue / (Decrease)	398.00	452.00	(323.00)
Income net of interest expenses	1,705.00	2,092.00	2,279.00	2,185.00
Increase in net interest revenue / (Decrease)	387.00	187.00	(94.00)
Earnings from continuous operations before tax	1,705.00	2,092.00	2,279.00	2,185.00
Increase in net interest revenue / (Decrease)	387.00	187.00	(94.00)
Net income after tax	1,265.00	1,604.00	2,063.00	2,217.00
Increase / (decrease) in net income	339.00	459.00	154.00

Out of the last four years the bank has only suffered negative growth in gross revenue from interests in the latest financial year ending on June 30, 2017. Thus, keeping that aside it is clear that the efficiency of the bank has helped it to not only keep its market share but also to improve on it. The net revenue from interests have also increased each year except in 2017. Earnings from continuous operations before tax and net income of the bank over the last four years further support the theory of improvement in efficiency of the bank to achieve significant growth in the competitive banking and financial industry in the country. The graph below clearly supports the conclusion about the bank’s improvement in competitive banking and financial industry in the country.    

Conclusion

Since, 2014 each of the four key indicators, chosen to compare the performance of the bank in respect to the competition in the industry, have improved to make it clear that if the efficiency as per the RPD approach is directly related to the profitability of a business then, the bank has improved its efficiency significantly and it is visible in its operating parameters.

Suncorp Bank:

In order to assess the competitive performance of Suncorp Bank it is imperative to appraise the performance of the bank over the last four years. The extract of income statements of the banks since the period ending on June 30, 2014 to the period of June 30, 2017 are provided below for evolution of the performance of the bank in the competitive industry.   

SUNCORP GROUP LTD  INCOME STATEMENT
AUD in millions	2014-06	2015-06	2016-06	2017-06
Revenues
Revenue from Premiums	8,583.00	8,553.00	8,679.00	8,899.00
Commissions and service fees received	458.00	582.00	568.00	551.00
Income from investments	697.00	569.00	171.00	74.00
Net capital gain / (loss) realized	(160.00)	91.00
Other income (loss)	3,844.00	3,500.00	3,228.00	3,055.00
Total revenues	13,582.00	13,204.00	12,486.00	12,670.00
Benefits and claims paid	6,468.00	6,200.00	5,940.00	5,948.00
Selling, general and administrative	2,092.00	1,671.00	1,683.00	1,808.00
Interest expense	2,029.00	1,816.00	1,587.00	1,442.00
Cost of merger, acquisition and restructuring	60.00
Other expenses	1,818.00	1,855.00	1,709.00	1,864.00
Total benefits, claims and expenses	12,407.00	11,542.00	10,979.00	11,062.00
Income before income taxes	1,175.00	1,662.00	1,507.00	1,608.00
Income tax (expense) benefit	(438.00)	(522.00)	(462.00)	(523.00)
Other income (expense)	(7.00)	(7.00)	(7.00)	(10.00)
Net income	730.00	1,133.00	1,038.00	1,075.00

The impact of competition is clearly visible on the performance of the bank. Unlike Macquarie, Suncorp has struggled to improve its efficiency to keep on improving its performance as per the RPD approach developed by Boone (2008). Macquarie improved its operating performance each year since 2014 whereas the performance of Suncorp has deteriorated each year since 2014. Total gross revenue of $13,582 million earned by the bank from insurance premiums, commission, fees and interests in 2014 has reduced to $12,670 million in 20174 with each year experiencing decrease trend in the gross revenue in business.

However, though the bank has failed to improve on its gross revenue but it has managed to improve on its earnings before income tax as well as on its net income. Surprisingly, despite the reduction in gross revenue over the years, both the income before income taxes and net income of the bank have improved with passing of each year since 2014. In order to analyse the trends in the performance of the bank better the following table would be helpful.

AUD in millions	2014-06	2015-06	2016-06	2017-06
Gross revenue	13,582.00	13,204.00	12,486.00	12,670.00
Increase in gross revenue / (Decrease)	(378.00)	(718.00)	184.00
Earnings from continuous operations before tax	1,175.00	1,662.00	1,507.00	1,608.00
Increase in net interest revenue / (Decrease)	487.00	(155.00)	101.00
Net income after tax	730.00	1,133.00	1,038.00	1,075.00
Increase / (decrease) in net income	403.00	(95.00)	37.00

The above computation makes it clear that though the bank has suffered continuous deterioration in earning gross revenue from business but the profitability indicators of the bank have improved since 2014. Compared to 2014 the increase in earnings before income taxes has increased by $433 million in 2017. Similarly the amount of net income of the bank in 2017 of $1,075 million has increased by $345 million from net income of 2014. The graphical representation would be helpful in understanding the impact competition on gross revenue and profitability indicators of the bank since 2014.

As can be seen that though the gross revenue columns have reduced almost every year but the earnings from continuous operations before tax and net income after tax columns have increased in each year. Boone’s approach of Relevant Profit Difference is based on the premise that the efficiency and profitability of a business are directly related to each other and moves in the same direction. Assuming that other conditions of perfect competition exists in the banking industry it can be concluded that Suncorp has performed quite well under the competitive pressure despite the inability of the firm to improve its revenue.

Westpac Banking Corporation:

At the time of introduction of Westpac at the beginning of the document, it was mentioned that the bank ranks second right behind the Commonwealth Bank of Australia in terms of market capitalization. A closer look at the financial performance of the company over the years would be extremely beneficial to understand how the competitive environment in the banking industry has affected the performance of one of the largest banks in Australia. The response to competition of such large bank would be visible on its financial performance over the years. The extracts of income statements of the bank for last four years ending on June 30, 2017 contained in the table below would help us in assessing the impact of increasing competition on the performance of the bank.

WESTPAC BANKING CORP  INCOME STATEMENT
AUD in millions	2014-09	2015-09	2016-09	2017-09
Revenue
Interest income
Interest income from Loans and Leases	29,104.00	29,307.00	28,953.00	28,504.00
Interest income on Deposits with banks	243.00	12.00	13.00	258.00
Interest income from Other assets	2,901.00	2,976.00	2,856.00	2,470.00
Gross interest revenue	32,248.00	32,295.00	31,822.00	31,232.00
Interest expense
Interest expenses for Deposits	11,499.00	10,669.00	9,369.00	8,868.00
Interest on Short-term borrowing	490.00	535.00
Expense (other)	6,717.00	6,824.00	7,305.00	6,848.00
Total interest expense	18,706.00	18,028.00	16,674.00	15,716.00
Income from interest net of interest expenditures	13,542.00	14,267.00	15,148.00	15,516.00
Commissions and fees	5,180.00	5,170.00	4,654.00	2,755.00
Fees for lending and deposits		1,193.00
Securities gains (losses)	(29.00)	(36.00)	(100.00)	63.00
Premium income			1,800.00
Income (Other)	1,244.00	1,195.00	1,252.00	179.00
Non-interest revenue in total	6,395.00	6,329.00	5,806.00	5,990.00
Net revenue	19,937.00	20,596.00	20,954.00	21,506.00
Credit loss provisions		853.00
Expenditures for compensation and benefits	4,667.00	4,630.00	4,601.00	4,701.00
Expenses of occupancy	125.00	1,073.00
Use of tech and communication equipment	1,449.00	1,857.00	2,041.00	313.00
Expenses for professional and other expert services	456.00	615.00	741.00	755.00
Intangible assets amortization	217.00	1,272.00	787.00	820.00
cost of merger, acquisition and restructuring	74.00
Other charges (Special)	(77.00)	49.00	1,348.00
Other expenses	1,912.00	565.00	(651.00)	1,772.00
Non-interest expenses in total	8,624.00	9,062.00	8,992.00	9,434.00
Earnings / (losses) before tax from continuous operations	11,313.00	11,534.00	11,962.00	11,219.00
Income tax expense provision	3,115.00	3,348.00	3,184.00	3,518.00
Other income (expense)	(637.00)	(174.00)	(1,333.00)	289.00
Net income	7,561.00	8,012.00	7,445.00	7,990.00

From the above information let us calculate the movement in key performance indicators to assess the impact of competition on the performance of the bank.

The importance of banking system and efficiency of banks to the overall progress and development of an economy has already been discussed earlier. Considering the four banks chosen in this document are all providing banking, finance, insurance and asset management related services a detailed competitive investigation into the affairs of these companies will enlighten us about the performance and position of these companies in the market.  

AUD in millions	2014-09	2015-09	2016-09	2017-09
Gross interest revenue	32,248.00	32,295.00	31,822.00	31,232.00
Increase in gross revenue / (Decrease)	47.00	(473.00)	(590.00)
Income net of interest expenses	13,542.00	14,267.00	15,148.00	15,516.00
Increase in net interest revenue / (Decrease)	725.00	881.00	368.00
Earnings from continuous operations before tax	11,313.00	11,534.00	11,962.00	11,219.00
Increase in net interest revenue / (Decrease)	221.00	428.00	(743.00)
Net income after tax	7,561.00	8,012.00	7,445.00	7,990.00
Increase / (decrease) in net income	451.00	(567.00)	545.00

The gross interest revenue of Westpac has reduced in last two financial years compared to the gross interest revenue earned in 2014. In fact if the gross revenue from interest earned by the bank in 2014 is considered then the decrease in gross revenue from interest is almost $1,016 million in 2017. The income before taxes of the bank has also reduced in 2017 to $11,219 million compared to $11,962 million in 2016. Thus, the income before tax of bank has declined by $743 million in 2017. However, net income of the bank has increased in 2017 to $7,990 million from $7,445 million in 2016. In 2015, Westpac earned $8,012 million thus, if the net income of 2015 is considered then the net income has declined in 2016 and 2017.

The RPD approach developed by Boone (2008) shows that line of efficiency and profitability line of an organization would be parallel. Thus, with improvement in efficiency the firm in an industry would be able to increase its profitability irrespective of competition in the market. Considering the size and scale of operation of Westpac though the increase and decrease in revenue and profitability of the bank over the last four years are relatively small but there even such small difference in profitability and revenue of business should be considered to determine the competitive environment in an industry.

All the four banks are large and established banks in Australia. The contribution of these banks in developing the banking and financial industry in the country is immense. It is true that the competition in banking industry in the country has increased significantly compared to the past. In fact with each passing year and withdrawal of number of draconian rules and regulations that were earlier present in banking industry the entry of new firms in the industry has increased significantly.

The theory of RPD developed by Boone (2008) considers the relevant profit difference between firms to measure the strengths of competition in an industry. A detailed investigation into the financial performance of the four banks have shown that the performance of none of the banks have either declined or enhanced extremely in last four years ending on June 30, 2017. All the banks have more or less managed to hold on to their market shares in the industry. However, does that mean the competition in the industry has remained unaltered in last four years? Well the answer is absolutely no because it is impossible in a free and fair market place to have same degree of competition without any change for continuous period of four years. The ability of these banks to hold on to their position in the market can be viewed both positively as well as negatively. The positive point of view can be the fact that despite increase in competitive environment specific to banking and financial industry in the country, all these four banks have more or less managed to hold on to their market shares and profitability. On the other hand the sceptics can also made the point that the banks have been unable to improve their market position in last four years and stagnating with same market share and profitability.

Using the following equation as provide by Boone (2008), relative profit difference of four banks provided below:

Relevant profit difference between the four companies assuming these are the only four banks in the industry is provided below:

It has been assumed that Westpac is the most efficient and Suncorp is the least efficient firm in the banking industry in the country. Thus, relative profit difference are provided below for the four banks (Kar, 2016).

	ANZ	MAQ	SUN	Westpac
Relative profit difference	(1,584.00)	(5,773.00)	(6,915.00)	–

Assuming that the banking industry in the country only consists of the four banks mentioned in this document lets calculate the relative profit difference between these companies over the last four years. In order to calculate the relative profit difference between the four companies the net income of the banks shall be taken.    

AUD in millions	2014
	ANZ	MAQ	SUN	Westpac	Total net income
Net income after tax	7,271.00	1,265.00	730.00	7,561.00	16,827.00
Proportionate ratio of net income	0.43	0.08	0.04	0.45
	2015
	ANZ	MAQ	SUN	Westpac
Net income after tax	7,493.00	1,604.00	1,133.00	8,012.00	18,242.00
Proportionate ratio of net income	0.41	0.09	0.06	0.44
	2016
	ANZ	MAQ	SUN	Westpac
Net income after tax	5,709.00	2,063.00	1,133.00	7,445.00	16,350.00
Proportionate ratio of net income	0.35	0.13	0.07	0.46
	2017
	ANZ	MAQ	SUN	Westpac
Net income after tax	6,406.00	2,217.00	1,075.00	7,990.00	17,688.00
Proportionate ratio of net income	0.36	0.13	0.06	0.45

In 2014 the ANZ earned 43% of the total profit relevant to the industry as compared to 8% and 4% by Macquarie and Suncorp. Westpac, however was the higher profit earner out of the four with 45% of the total profit accounted for by the bank.

In 2015 both ANZ and Westpac surrendered little bit of profitability to relatively small two banks, i.e. Macquarie and Suncorp. Macquarie and Suncorp accounted 9% and 6% of the total profit of the industry respectively in 2015 compared to 8% and 4% of 2014. In 2016, however, ANZ surrendered big chunk of its profitability as it only earned 35% of the total profit compared to 43% in 2014. Both Macquarie and Suncorp gained from the loss of ANZ but the gain of Macquarie was significantly higher than Suncorp. Macquarie earned 13% of the total profitability of the four banks compared to 9% of 2015. In 2017 every company more or less hold on to their profitability position (Kar, 2016).

Conclusion:

The relative profit difference and performance analysis of the four firms in the document clearly shows that there is significant changes in the operating parameters of these four banks over the last four years. The changes in the performances of these firms is not due to any particular reason such as increase in competition but a combined effect of number of reasons such as increase in competition, changes in customer preferences, changes in income level of the customers, availability of alternative products, changes in general inflation level in the country, changes in efficiency in providing services by different banks and others.

References:

Abel, S., Khobai, H., & Le Roux, P. (2017). Evaluating competition in the loan and deposit market using the Boone indicator approach. Southern African Business Review, 21(1), 274-291.

Kar, A. K. (2016). Measuring competition in microfinance markets: a new approach. International Review of Applied Economics, 30(4), 423-440.