State Bank of South Australia
The State Bank of South Australia was a bank owned by the Government of South Australia. Its collapse in 1991 was a major political event in South Australia. The surviving part of the bank now exists as BankSA.
The bank was expanded in 1984 by its merger with the Savings Bank of South Australia, the expanded entity retaining the "State Bank of South Australia" name.
In March 1988 the Bank purchased the life insurance and managed funds business Oceanic Capital Corporation for A$60.0M.
1991 State Bank collapse
The bank's financial implosion in 1991 was one of the biggest economic disasters to hit in the state. The State Bank's deposits were "guaranteed" (legally underwritten) by the Government of South Australia; the net effect was to put every ordinary citizen and business living or operating within South Australia into billions of dollars of debt.
Despite SA State Bank managing director Tim Marcus Clark being ultimately considered[by whom?] the most legally responsible for the Bank's downfall, he nevertheless received no court penalty or reprimand.
Politically, it caused the resignation of State Australian Labor Party (ALP) premier John Bannon in 1992, and the crushing electoral defeat of the South Australian ALP government at the following 1993 election.
The State Bank collapse continued to affect South Australian citizens, along with the state's finances and politics well into the 21st century. The State Bank debt was given as the main reason for the privatisation of Electricity Trust of South Australia (ETSA) by the Liberal government of John Olsen, despite his election promise in 1997 that privatisation of ETSA would not occur.
The saleable portion of the State Bank was acquired by Advance Bank, which itself was bought by St George Bank. The Bank of South Australia (also known as BankSA) is now a division of, and a trading name of, St George Bank. St George Bank merged with Westpac Bank effective 1 December 2008.
Causes of the collapse
In March 1991 the Auditor General of South Australia was appointed to conduct an inquiry to determine the causes of the State Bank's need for Government support. The report, delivered in 1993, found the key cause of financial distress was the non-performing assets of the Bank, i.e. its loan portfolio. These non-performing assets were corporate and property-related loans made by the Bank. At the time of the bailout, non-performing assets exceeded 30% of the loan book. The report found that 'to a lesser extent', its investments in major subsidiaries acquired between 1985 and 1990 also performed poorly and were also a contributory cause.
The Auditor General did, however, make it clear that while these external factors were causes of the bank's poor financial position, 'a contributing cause of the institution's financial failure' was the failure by the bank to adequately manage the debt, capital, interest rate risk and liquidity risk of the bank. The report indicated that this was because 'policy and procedural inadequacies, and the lack of effective supervision and control of certain of the Bank's activities, contribute to the mismanagement of the business of the Bank as a whole'.
In March 1991 Samuel Jacobs QC was appointed to head a royal commission to investigate the relationship between the Bank and the South Australian Government, and the arrangements under the Bank of South Australia Act for the governance of the Bank.
Bannon remained as Premier during three inquiries, the last two of which cleared him of any deliberate wrongdoing.
Chris Kenny, a former journalist, who has worked as advisor to Liberal politicians John Olsen, Rob Kerin and Alexander Downer, and as chief of staff to Malcolm Turnbull, wrote State of Denial, a book which analysed the State Bank collapse.
Advance Bank, St George Bank and Westpac Bank
In 1997, NAB took over the Advance Bank and its BankSA subsidiary.
In 2008, St George merged with Westpac.
There are a number of building societies and banks with intertwining histories. These include:
- St.George Bank
- Advance Bank
- BankSA / Bank of South Australia
- Savings Bank of South Australia
- State Bank of South Australia
- Westpac Banking Corporation
- 2006 South Australian Election. Morialta Electorate Profile, Australian Broadcasting Corp (ABC)
- 'Report of the Auditor-General on an Investigation into The State Bank of South Australia, Chapter 16', Auditor General of South Australia, Adelaide. Retrieved 10 July 2007.
- Top 10 Financial Moments That Shaped SA, Greg Mccarthy, (Politics Lecturer with the University of Adelaide), ABC online, 29 May 2008
- Penelope Debelle (27 February 2009). "The best I could do was not good enough". Adelaide Now. Retrieved 2011-02-07.
- Report of the Auditor-General on an Investigation into The State Bank of South Australia - Full text of Auditor General's report, 1993