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2020 saw Australia’s mutual banks, building societies and credit unions (the ‘Mutuals’) record total asset growth similar to 2019, as the sector continues its focus on their ‘customer-centricity’ and trust and loyalty within their communities despite the challenging operating environment.

Bushfires, floods and COVID-19, alongside the continued competitive pressure of a low interest rate environment, were all reflected in increased loan loss provisioning and higher increase in investment in people and technology. As a consequence, financial results of the Mutuals for 2020 were impacted. At the same time, the financial services industry more broadly continues to face high levels of political, regulatory and media scrutiny.

 

Key highlights | Key themes | Financial results highlights | Webinar | Spark videos | Further information

Key highlights from the report

  • Residential lending increased by 3.0 percent.
  • Deposits increased by 7.0 percent.
  • Net interest margin decreased by 13 bps to 1.79 percent.
  • Non-interest income decreased by 3.7 percent to $421.8 million.
  • Impairment expenses increased by 8 bps to 0.12 percent.
  • During the year, 5 mergers were completed.
  • Return on equity decreased by 101 bps to 3.7 percent.
  • Capital levels decreased by 36 bps to 16.67 percent.
  • Deferral of COVID-19 loans totalling to $5.65 billion (5.5 percent of loans and advances).

Front of mind for Mutuals in this challenging environment is how best to leverage their member and community based trust and agility in order to remain resilient in the face of these headwinds, and how to transform the business with a focus on customers’ needs. Mutuals have been focusing on a number of factors impacting their businesses over the past 12 months including the operational impacts arising from the rapid shift to remote working, taking advantage of access to the Reserve Bank of Australia’s Term Funding Facility and the lower rate funding this provides, and the need for greater online presence for their customers.

Key themes

The survey has also highlighted 7 current and emerging topics that are front of mind for a Mutual, including:

1. Regulatory Resilience – Race to compliance – How can Mutuals reprioritise efforts to respond to amendments to the regulatory change agenda? What are the different strategies to respond?
2. Operational Resilience – How do Mutuals remain operationally resilient in the face of a global pandemic, and other challenges?
3. Transformation and Simplification – What are the next steps and priorities in the Mutuals growth and transformation journey? Where should Mutuals focus in order to simplify the customer experience and enhance core capabilities?
4. Cost Optimisation – What levers are available for Mutuals to pull to optimise their cost base, whilst remaining agile? When should these levers be pulled to remain resilient?
5. Trust agenda in unprecedented times – How can Mutuals use their existing bond with the customer and community to navigate challenges together and with the customer?
6. Evolving Customer Behaviour – How are customer behaviours and preferences evolving during COVID-19 and which features will persist beyond the pandemic?
7.  

Increasing focus on Environmental, Social and Governance (ESG)

  • Climate risk and sustainable finance models – What are some of the learnings from emerging climate risks and what sustainable finance models can be used by market participants?
  • Modern Slavery – Are Mutuals captured under the new legislation? What are the learnings that are transferrable regardless of the size of the Mutual?
  • Sustainable Development Goals – How can Mutuals leverage goals set by other Financial Institutions and what expectations will cascade through the sector?

2020 Financial results highlights

  

Mutuals industry review 2020 infographic

Mutuals Industry Review 2020 – Webinar

  

Spark videos

Watch our report contributors speak to their respective observations on the Mutual sector and the broader banking sector overall.

Further information

 

 

1Loan deferrals calculated based on APRA’s Temporary loan repayment deferrals due to COVID-19, June 2020.