Foreign owned banks are now the fasting growing players in the Australian retail banking market as homegrown rivals, including the four majors, take big earnings hits.
In the last month the local arms of ING, Citibank and HSBC have each reported record annual profits built on healthy mortgage growth and widening distribution through brokers and retail partners.
ING Australia, which is now the fifth largest holder of retail deposits in Australia, posted a ten per cent improvement in bottom line earnings to A$440 million, while the same rate of growth drove HSBC Australia to a $330 million net profit.
Citi also joined the party last year, boosting its net earnings by 28 per cent to $202 million.
While the country's most prominent regional bank brands - Bendigo, Suncorp, ME and Bank of Queensland - have continued to focus their public commentaries on the funding advantages enjoyed by the four majors, the foreign challengers have cut their lunch.
The Australian-owned regionals all suffered profit declines last year partly because ING, Citi and HSBC took market share from them.
It's a curious trend that could escalate in coming years as other foreign-owned players with deep capital resources extend their presence in the local market.
The standout performer among the most recent foreign challengers is the Bank of China's Australian subsidiary, which in the last two years has emerged as the fastest-growing deposit-taker and home lender in the nation.
Importantly, the subsidiary's business expansion is not coming at a cost to its bottom line. Bank of China Australia Limited (BOCAL) revealed to Australian regulators on Tuesday that it posted a 29 per cent rise in net earnings to $22.5 million for the year to December 2019.
Although BOCAL's profit was dwarfed by the local operations of the three other global banking giants, the result represents almost a trebling of the 2017 bottom line.
Business has been booming for the Bank of China in Australia.
The 2017 financial year is significant strategically for BOCAL because it was then that its board decided to reconfigure its approach to providing retail banking services in Australia.
Historically, BOCAL specialised in organising finance for non-residents wanting to acquire Australian property, but that changed three years ago when the subsidiary capped its exposure to non-resident borrowers at 20 per cent of all new mortgage lending.
In only a few years, the BOCAL brand has been repositioned as a mainstream offering to Australian consumers.
Pricing information about the bank's mortgages is now published in the tables of mainstream comparison websites such as Finder and RateCity.
And the bank has expanded its proprietary distribution, with the opening of retail branches in Perth and Adelaide and five new suburban outlets in Melbourne and Sydney.
However, the most aggressive moves have been in third party distribution, particularly the mortgage aggregation platforms.
Bank of China products are now marketed through thousands of brokers operating via the AFG, Connective and the NAB-owned Choice aggregation networks.
Those relationships were a big factor in BOCAL boosting its home loan book by 73 per cent to $2.6 billion last year.
BOCAL is now developing a new digital platform to improve its service offering to brokers - a move that aggregators suggest will make the bank's mortgages even more marketable.
"Bank of China is a great lender to deal with and they are very engaged with our brokers," said Connective director, Mark Haron.
"Their digital offering has lagged other lenders but they are in the process of adding more online service capability which I believe will position them to grow market share."
Another factor working for BOCAL is the willingness of its parent company to fund Australian loan growth.
The bank grew its retail deposits by $580 million or 25 per cent in 2019, but this was not sufficient to fund all the new lending.
BOCAL was able to tap its immediate holding company in Hong Kong to fill the funding gap. In this regard, BOCAL is tackling the Australian banking market in much the same way as the local arms of ING and HSBC have done in the last decade - by leveraging the balance sheet of a rich parent.
This strategic blueprint is demonstrably potent and presents an immediate existential threat to mid-tier Australian lenders.
The success of foreign-owned bank subsidiaries seems under-appreciated in the local banking sector, especially by regional banks standing in their line of fire.