While the year’s fervent debate about banking industry behavior has left many Australians doubting the conduct and claims of our finance sector kingpins, one corner of the market, at least, has customer loyalty apparently blossoming.
Latest data from the Australian Prudential Regulation Authority shows mutual banks, credit unions and building societies have good reason boast supportive growth from their customers – who, incidentally, own the institutions they bank with.
Customer-owned banks have grown their asset base by $2 billion in the past three months to more than $110b.
A decade ago the not-for-profit “underdog” mutual banking sector was only about half that size.
It now has about 4 million customers (many in regional areas), plus the nation’s second largest automatic teller machine network and cheaper standard variable home loan rates than Australia’s big four banking majors.
Profits are redirected back to customer services or to support community projects.
Mutual banks have invested in these customer-focused service upgrades, which will only hasten the exodus from the big banks
Unlike the big four – Commonwealth Bank, Westpac, National Australia Bank and Australia New Zealand Banking Group – which have been bruised by months of political and financial sector debate and community disenchantment, Australia’s 77 customer-owned mutuals seem to have benefitted from the disgruntled public mood.
“Australians are responding to our customer and community focus and comprehensive banking experience,” said the Customer Owned Banking Association’s (COBA) Michael Lawrence.
“It’s extremely encouraging to see our sector growth continue.”
The COBA chief executive officer, also pointed to report by professional services giant, KPMG, which highlighted the mutual sector’s strong financial performance in a “challenging” operating environment, and its investment in technology.
Thinking ahead of the pack
KPMG noted six of the top 10 mutuals already partnered with the Apple Pay, Android Pay and Samsung Pay systems, compared with just one of the major banks.
“New opportunities for collaboration … a new payments platform, and the growth of Australia’s fintech sector will open doors for mutuals as they concentrate on attracting the next generation of consumers,” the report said.
One of those technology-savvy mutuals is Queensland’s new RACQ Bank, a full service lender launched in September after the $3.9b merger with QT Mutual Bank (formerly the State’s teachers credit union).
RACQ Bank now has 13 bank branches.
New opportunities for collaboration ... a new payments platform, and the growth of Australia’s fintech sector will open doors for mutuals as they concentrate on attracting the next generation of consumers
“It shows what Australians can do with the mutual model when they have access to capital,” said Business Council of Co-operatives and Mutuals CEO, Melina Morrison.
“We’re particularly enthusiastic about innovative digital payments RACQ offers and its commitment to low or no fees,” she said.
“Mutual banks have invested in these customer-focused service upgrades, which will only hasten the exodus from the big banks.”
Despite the odds stacked against smaller customer-owned lenders and the big banks reaping $4b from the federal government’s implied guarantee on depositors’ savings, Ms Morrison said “the underdog banks have the courage to offer alternatives to Australians”.
“We can only imagine what agile member-owned businesses can achieve if freed from shackles restricting their access to capital,” she said referring to requirements on mutual lenders to fund their loan book from their own asset base, not offshore funds.
Staking claim to bank name
COBA’s Mr Lawrence said recent moves by some credit unions and building societies to re-badge as “banks” was a deliberate strategy to get “greater cut-through in the market, attract younger customers and reinforce themselves as customer-owned and focused lending organisations”.
“We already have 20 customer-owned banks and welcome federal government allowing credit unions and building societies to use the term ‘bank’, which is of course is what we do.”
One newly-renamed mutual and Australia’s biggest non-metropolitan “bank” is NSW’s Regional Australia Bank (RAB), which dropped its previous Community Mutual Group title last year.
People like the idea of banking with an institution where they see profits come back to the local community
The Armidale-headquartered RAB began life in 1969 as the University of New England Staff Credit Union, later merging with others in Armidale, Tamworth, Dubbo and the Upper Hunter Valley to now boast a $1b-plus asset base.
Its 200 staff in 27 branches service a footprint over the northern half of NSW.
“We’re here for regional Australia – that could be anywhere in NSW, or further afield in the future,” said RAB’s Orana and Hunter regional manager, Ben Luck for the Orana and Hunter.
“People like the idea of banking with an institution where they see profits come back to the local community.
“Increasingly, people are seeing Regional Australia Bank as a strong alternative to the big four banks.
“We have a similar product offering to all majors, along with specialist relationship managers and an ongoing commitment to our communities”.
“They like the idea that we pledge at least five per cent of our profits to community initiatives – in fact, we’re paying out about 10pc annually.
“Next year we’re likely to give more than $1m to not-for-profit groups ranging from local junior rugby clubs or CWA to the Royal Flying Doctor Service.”
RAB’s 70,000-plus member customers can nominate local beneficiaries to receive a portion of the profits.
Meanwhile, the bank ended last financial year recording 12.4pc annual lending growth (almost 2.5 times the average for the banking industry), revenue of $44.2m and a $1.1m rise in profits to $8.1m.
While agribusiness lending is not a significant part of RAB’s offering, Mr Luck said its specialists “look at all requests”, and do handle a significant portfolio of regional-based commercial and investment loans as well home and personal lending.