The performance of the mutuals was tested this past year and they reported a 9.9 percent decrease in operating profit after tax, caused partly by a reduction in margins and falling interest rates. Asset growth was slower during the current financial year due to the intense competition in the lending and deposits markets, as well as global economic uncertainty which continues to weigh on consumer sentiment. Despite the challenging environment the mutuals produced positive asset growth at an average of 4.5 percent (2011: 7.6 percent), higher than the major banks average of 3.91 percent (2011: 8.81 percent).
"Their customer service model, which earns enviable loyalty from their members, continues to serve as a buffer against competitive pressures. The mutuals grew deposits 6.3 percent and maintained impressively low impairment losses with bad debt expense of $37.7 million decreasing 1.4 percent from the previous year," said KPMG financial services partner, Peter Russell.
The mutuals kept staff numbers flat and reported a slight increase (3.3 percent) in total operating costs which is reflected in the small decrease in the cost to average asset ratio from 2.31 to 2.27.
"These results show a sector transitioning from a solidly performing savings and residential loan strategy, to a changing economic environment replete with regulatory pressures, new technology platforms and intense competition. Despite these pressures the mutuals remain well capitalised and managed, with a solid base to grow," Mr Russell noted.
KPMG also surveyed the mutuals’ views on themes of the current banking landscape including; social media, mobile technology and the impact of regulation and risk management. The responses give insight into how the mutuals see the future:
- 88 percent of respondents consider social media to be important to their strategy
- 88 percent expect to spend more in 2013 on mobile technology
- 72 percent believe Basel III will disadvantage their business
- 68 percent said a fifth banking pillar isn’t possible
- 74 percent believe there are government and industry barriers affecting their ability to compete
- 67 percent called for a review of the financial system.
"In an extremely competitive market the mutuals plan to positively engage customers by continuing their focus on high quality service, customer satisfaction and strong brand strategy. However, they will need to rethink the way they attract and retain customers in a challenging economic environment and facing intense competition, all the while juggling increasing regulation and a continued focus on risk management," said Mr Russell.
Next year will be challenging, but this sector has demonstrated its resilience many times over.
"Some (42 percent) expect to grow their balance sheet; others (45 percent) will continue with their brand strategy and close to a third (29 percent) plan to transform their business. We cannot say what the sector will look like next year, but we know 2012-13 marks the beginning of a new phase for the mutuals,” said Mr Russell.
1 Source: KPMG Major Banks Survey – Year End 2012