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Mutuals performing well as regulatory changes open new doors

Mutuals performing well

Strong results come at pivotal time for mutuals actively pursuing growth.


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2017 saw Australia’s credit unions, building societies and mutual banks (the ‘mutuals’) perform strongly in an environment characterised by low interest rates, increased competition, fluctuating property prices and technology disruption. KPMG Australia’s Mutuals Industry Review 2017 finds that mutuals’ balance sheets were strengthened with net asset growth of 6.8 percent and residential lending growth of 9.8 percent. Profit was marginally down however, as net interest margins continued to tighten, decreasing 4.3 percent to $605.7 million before tax from 2016.

Ian Pollari, National Head of Banking for KPMG Australia, commented: “It has been another solid year for mutuals, with continued asset growth in an increasingly challenging operating environment. They have demonstrated that, even faced with difficult market conditions, they can offer customers a compelling alternative. Looking ahead, they will need to balance profitability with expansion, as well as creating capacity to invest in digital technologies.”

“With new regulatory rules set to reshape the competitive landscape, Australia’s mutuals sector is in a position to continue their growth in 2018,” he said.

Key financial results for the mutual sector for the year are:

  • Residential lending increased by 9.8 percent (2016: 9.8 percent) to $83.4b
  • Deposits increased by 10.5 percent (2016: 7.9 percent) to $87.3b
  • Technology spend increased by 12.4 percent (2016: 11.7 percent) to $168.2m
  • Net interest margin dropped 11bps to 2.03 percent
  • Non-interest income increased by 1.2 percent (2016: 5.0 percent decrease)
  • Impairment provisions remained steady at 0.07 percent of average gross receivables (2016: 0.07 percent)
  • Capital levels fell slightly to 17.2 percent (2015: 17.5 percent).

Mutuals continue to face challenges, with interest margins again falling this year to 2.03 percent from 2.14 percent. This fall can primarily be attributed to the continued competition for deposits and loans. It is reflected in the concerns of the sector: When questioned what their top priority is for the next 3 years, 59 percent of survey (mutual) participants said: ‘maintaining profitable and sustainable growth through lending, managing costs and capital.’

Going forward, KPMG expects the regulatory changes to play a major role in shaping the future of mutuals. To thrive, they will need to take advantage of the growth opportunities presented by reform, while managing the impacts of regulatory and accounting changes. The Banking Executive Accountability Regime (BEAR), AASB 9 Financial Instruments and other tax matters all loom on the horizon.

Tim Aman, KPMG National Sector Leader, Mutuals commented: “The latest move by the Turnbull Government comes at a pivotal time when mutuals have been actively pursuing growth. On 8 November 2017, the Government announced their support for all 11 recommendations commended by Greg Hammond OAM in his independent review over ‘Reforms for Cooperatives, Mutuals and Member-owned Firms’.”

“These recommendations looked to ‘improve access to capital, remove uncertainties currently faced by the sector, reduce barriers and enable cooperatives and mutuals to invest, innovate, grow and compete’ through proposed regulatory and legislative changes. The support of these recommendations is exciting for the sector. They will help mutuals fund growth, take on new opportunities, invest in new technologies, and better position themselves as a competitive choice in the Australian market,” he said.

KPMG is optimistic about the future for mutuals, with digital technology set to play a key role in future developments. 2017 saw the mutuals continue to expand their omni-channel capabilities through technology such as new mobile offerings, refreshed web designs, and improved digital experiences. This reflects a focus on younger generations of Australians: 91 percent of mutuals are actively targeting younger generations but only 49 percent have been successful in growing market share with millennials.

Tim Aman commented: “Mutuals have already demonstrated a willingness and ability to rapidly integrate new technologies into their product offerings. For example, six of the top 10 mutuals already partner with the Apple Pay, Android Pay and Samsung Pay systems, compared to just one of the majors. New opportunities for collaboration, the arrival of the New Payments Platform, and the growth of Australia’s fintech sector will open up new doors for mutuals as they concentrate on attracting the next generation of consumers.”

About KPMG’s Mutual Industry Review 2017

The survey examines the performance and trends of mutuals in Australia’s financial services sector for the financial year ended 30 June 2017. The mutuals sector covers Australia’s mutual banks, building societies and credit unions. The survey considers the financial performance for the year ended 30 June 2017, as well as responses to a qualitative questionnaire covering the risks, challenges and opportunities facing the industry.

For further information

Kristin Silva
T: 0411 110 953

Ashford Pritchard
T: 0411 020 680


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