Australian banks win deregulation -- but get foreign competition, too

Australia's banks are preparing for the biggest shake-up in their history, an event they privately wish wouldn't happen but which they are unable to oppose. The government has approved, according to the Treasury in Canberra, the admittance of ''about 10'' foreign banks to compete head to head with the conservative and highly profitable local banks.

The decision, delayed almost a year because of a lack of Cabinet unanimity on the issue, will put in action a key proposal in the Campbell Report, which followed an exhaustive government-sponsored inquiry into the entire Australian financial system. The Campbell Report called for wide-ranging deregulation of banking operations.

Australian banks argued, in inquiry testimony, in favor of increased deregulation and for fewer official controls in the marketplace. In taking this approach, the local banks would have lost credibility if they also asked for continued protection against foreign competition - particularly at a time when they themselves are trying to win business overseas, mostly in Asia.

Australian Treasurer John Howard says more details of the regulations to govern the entry of foreign banks will be announced soon. Initially, ''about 10 '' will be allowed to win Australian customers. To do so, they will have to establish branch networks with a full range of retail banking services across Australia. Mr. Howard says this requirement will prevent their ''picking the eyes out of the market'' by confining themselves to major corporate business in the big cities.

To prepare for increased competition, four local banks have merged into two large institutions. The current picture is three large private-enterprise banks, one small privately owned bank, a big federal-owned bank, and banks owned by state governments, operating mainly in their own states.

Mr. Howard says selection of applicant banks, expected to take place later this year so they can begin their Australian operations within three years, will depend on various factors. Among them: the banks' standing in their own countries, their previous involvement in loans to the Australian government or private sector, and a geographical spread (so that all the selected banks don't come from say, the United States, but represent the major trading partners).

Banking sources suggest US, Japanese, British, continental European, and Southeast Asian (Hong Kong and Singapore) banks will most likely be represented in equal numbers.

Bank of America has already announced it will apply for a license. Britain's Standard Chartered Bank - a key institution in Hong Kong - has said it will be quite happy to establish a branch network as a condition of entry.

Among other banks mentioned frequently in Sydney and Melbourne banking circles as likely to apply for licenses are Citibank and Chase Manhattan of the US, Barclays and Midland of Britain, and Bank of Tokyo and Sumitomo of Japan.