Mutuals face financial, technology and strategic challenges in difficult year

Mutuals face challenges in difficult year

Australia’s mutual banks, building societies and credit unions (the ‘Mutuals’) faced a challenging year, as a consequence of bushfires, floods, the COVID-19 pandemic, along with continued competitive pressures in a low interest rate environment.


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KPMG Australia’s Mutuals Industry Review 2020 is based on the financial results of 47 Mutuals (representing over 97 percent of the sector by total assets and profit before tax) as well as a qualitative survey, which asked Mutuals to share their views on the risks, challenges and opportunities they see facing the industry. It shows that Mutuals’ balance sheets (net assets) grew 4.6 percent (2019: 6.4 percent) to $9.8b, while overall operating profit before tax fell by 19.1 percent (2019: fell 3.6 percent) to $494.3m (2019: $611.0m).

Ian Pollari, KPMG Australia Head of Banking, commented: “The 2020 financial year will be summarised as a challenging year for business, communities and individuals – and the Mutuals were no exception. The past year has also been categorised by low interest rates, and hence a flow on impact to net interest margins – essentially the life-blood of the Mutuals’ financial performance, and increased levels of provisioning.”

“The uncertainty in the market has seen the Mutuals incorporate revised economic assumptions and model overlays in their provisioning models. This has had a flow on impact to the bottom line of many market participants. However, the Mutuals are well positioned to meet these challenges. During these difficult times, customers look to their financial institution to provide them with clear solutions and support. The success of Mutuals lies in their strong customer bond and affiliation as “purpose-driven organisations”, providing value to the community and members alike.”

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

  • Residential lending increased by 3.0 percent (2019: 8.9 percent) to $100.2b
  • Deposits grew by 7.0 percent (2019: 10.6 percent) to $108.4b
  • Net interest margin decreased by 13 bps (2019: dropped 6 bps) to 1.79 percent
  • Non-interest income decreased by 3.65 percent (2019: decreased by 2.03 percent) to $421.8m
  • Impairment expenses increased by 8 bps to 0.12 percent of average gross receivables (2019: no change)
  • Capital levels decreased by 36 bps to 16.67 percent (2019: increased by 8 bps)
  • $5.65b of COVID-19 related loan deferrals (5.52% of loans and advances)1

The Mutuals sector continues to maintain a positive outlook in the face of ongoing market and economic uncertainty, with 70 percent of survey respondents revealing they feel confident in their three year growth prospects, a notable increase from 63 percent in 2019. They noted that the top three drivers of this growth would be a greater focus on increasing residential lending, the digitisation of banking services and increasing deposits.

Brendan Twining, KPMG National Sector Leader, Mutuals, commented: “The pandemic has escalated the need for change as customers preferences shifted to online banking and interaction with their financial services provider. Without doubt, technological change that was originally thought to take 2-3 years to implement, was – in many cases – achieved in less than 2-3 months and at lower cost.”

“Going forward the challenge will be to continue to maintain this momentum, both with respect to the operational changes made, identifying and transforming additional aspects of the business, as well as cultural change. Ultimately Mutuals, whilst maintaining the customer trust/bond that they have built up over many years, must continue to identify ways to invest and transform in a cost efficient manner, whilst building a resilient organisation into the future.”

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

About KPMG’s Mutual industry review 2020

The survey examines the performance and trends of Mutuals in Australia’s financial services industry for the 2020 financial year. The Mutual sector covers Australia’s mutual banks, building societies and credit unions. The survey also considers the responses to a qualitative questionnaire covering the risks, challenges and opportunities facing the industry.

For further information

Ash Pritchard
+ 61 411 020 680

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