The State Bank of South Australia was a bank created in 1984 and owned by the Government of South Australia. The bank became the subject of a two-year South Australian Royal Commission upon collapse in 1991. The surviving part of the bank now exists as BankSA.
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Early history
The bank was expanded in 1984 by its merger with the Savings Bank of South Australia, with 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$60.0 million.
Questions over the financial viability of the bank were first raised prior to the 1989 state election by Opposition Liberal Party member Jennifer Cashmore.
In June 1990, the United Building Society was purchased for $NZ150.0 million.
Collapse
The bank's financial implosion in 1991 was one of the biggest economic disasters in the state's history. As a government-owned bank, deposits were guaranteed (legally underwritten) by the Government of South Australia.
The bank's managing director, Tim Marcus Clark, was ultimately considered the most legally responsible for the bank's downfall, Labor Premier John Bannon resigned in 1992, and a landslide electoral defeat of the state Labor government occurred at the subsequent 1993 election, won by the Liberal opposition led by Dean Brown.
The State Bank collapse continued to affect the state's finances and politics 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 second-term Liberal minority government led by John Olsen despite his promise prior to the 1997 election that privatisation of ETSA would not occur. Olsen was replaced by Rob Kerin as Premier and Liberal leader following the Motorola affair in 2001, but he lost government to Labor led by Mike Rann at the 2002 election, with the Liberals remaining in opposition ever since.
The saleable portion of the State Bank was acquired by Advance Bank, which 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 on 1 December 2008.
Causes
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, its loan portfolio. The 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 a contributory cause.
The Auditor General, however, made it clear that while 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 South Australian 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. The first witness to be called was John Barnes, the state's former Under-Treasurer (1976-1984). Three reports of the Commission's findings were published in 1992 and 1993. The first and second reports were presented by the Honourable Samuel J. Jacobs and the final report was presented by John Mansfield.
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 that analysed the State Bank collapse.
Takeover
In 1992, Advance Bank bought the "good bank" and continued to run it as a separate entity named the Bank of South Australia, and trading as BankSA.
In 1997, St.George Bank took over the Advance Bank and its BankSA subsidiary.
In 2008, St George merged with Westpac.