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New research has shown mutual banks, building societies and credit unions have continued to grow in an environment characterised by low interest rates, increased competition and new technology.
KPMG Australia’s Mutuals industry review 2018 found that overall operating profit before tax grew by 4.6% to $634.8million, whereas in 2017 it had seen a drop of 4.3%.
The mutual banks’ balance sheets saw a much slower growth, going up 5.6% to $8.9billion compared to the 7.3% increase it saw the year before.
Ian Pollari, national head of banking for KPMG Australia, said, “The 2018 financial year saw the mutuals record slower growth compared to previous years in a challenging operating environment for the banking industry as a whole.
“In the face of industry-wide headwinds, the mutuals continue to perform strongly and looking ahead will seek to differentiate the home loan experience through better member service and mobile product offerings, underpinned by investment in digital technology.”
Residential lending continued to grow, although this too saw a slower growth than previously. There was a 6.6% growth in residential lending to $89.5b, compared to a 10.4% growth in 2017.
Deposits increased by 5% in 2018 to $91.9b, but had risen by 10.8% the year previously.
KPMG said the mutuals’ continued growth was underpinned by their continued efforts to streamline operations and invest in technology.
While the mutual banks did increase their technology spend by 5.7% to $182.9m, it was a smaller jump compared to 2017’s 16.4% increase.
Brendan Twining, KPMG national sector leader, mutuals, said, “Going forward, mutuals must continue to take ownership of their customer advocacy and branding efforts and own the trust narrative through their interactions with all stakeholders.
“The success of the mutual sector lies in their ability to retain their strong branding as ‘community focused’ and providing clear solutions that are aligned to members’ interests.”
The Customer Owned Banking Association welcomed the report “in a tough business environment”.
COBA CEO Michael Lawrence said, “As customer-owned institutions, mutual banks, credit unions and building societies have always existed to put people before profits.
“We are not trying to squeeze our customers to please shareholders. Our model does not make us immune from trust issues but it certainly gives us an advantage on our shareholder-return focused competitors.”
The report identified growing uncertainty around the regulatory environment due to the Royal Commission with respondents raising concerns about the potential for increased regulatory burden and a lack of proportionality in regulation.
Lawrence added, “There are significant dangers of a ‘broad brush’ approach to banking regulation.
“Regulatory responses to the Royal Commission must recognise that if the same regulatory proposal is indiscriminately applied to all institutions, then it could harm smaller entities’ capacity to compete against major banks.”
