“The mutuals’ results were strong, particularly in a year when loan growth across the economy has been subdued. To some extent, the performance reflects their members’ loyalty but it may also reflect a greater awareness of the sector following debate about a ‘fifth pillar’ and increased marketing by the sector,” said KPMG banking partner Martin McGrath.
The mutuals’ bad and doubtful debt expense continues to be very low, largely reflecting continued strength in the housing sector. This is in line with the major and regional bank sectors which also posted increased profits, largely off the back of reduced bad debt expenses and carefully managed costs,” he added.
Overall, profits after tax for credit unions increased 18 percent, while building societies saw a decrease of 5.1 percent. “These results reflect good performance by the sector, built on asset growth, high levels of capital, continued low bad debts and the absence of significant one-off costs, offset by the continuing impact of competition on interest margins,” Mr McGrath noted.
The sector continued to hold its place in the market, with both building societies (5.5 percent) and credit unions (8.0 percent) experiencing increases in total assets. In addition, the mutuals’ reliance on retail deposits as a key source of funding continues to be fuelled by consumer preference for saving 2 rather than borrowing. This, combined with their continued focus on serving their members and raising awareness of their product offerings, has resulted in the mutuals experiencing strong growth in deposits for both building societies (7.9 percent) and credit unions (8.0 percent).
The increases experienced in both assets and deposits is encouraging for the sector as both markets have come under continued, and increased pressure, from the major banks during the past 24 months. “Mortgage loans and retail deposits remain the staple offerings of the sector so success in these markets is critical,” said Mr McGrath.
An interesting development during the year was the decision by a number of mutuals to rebrand as ‘mutual banks’ reflecting a desire to be recognised as the equivalent of banks. “The reality is, the mutuals have been regulated by APRA for many years and the adoption of ‘bank’ status simply seeks to ensure this is recognised by the community at large,” said Mr McGrath.
“The rebranding creates an interesting challenge for the mutual banks as they also seek to differentiate their proposition from the large banks,” he added.