Australia’s mutual banks, building societies and credit unions (the ‘Mutuals’) performed well in 2019, showing strong balance sheet and lending growth despite a tough overall environment that saw a squeeze on net interest margins coupled with increased people and technology costs.
KPMG Australia’s Mutuals Industry Review 2019 is based on the financial results of 44 Mutuals (over 95 percent of the sector) 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 grew 4.3 percent (2018: 5.6 percent) to $9.2b, while overall operating profit before tax fell by 6.1 percent (2018: grew 4.7 percent) to $593.3m (2018: $631.8m).
Ian Pollari, KPMG Australia’s National Sector Leader – Banking, commented: “The financial result underscores the ability of the Mutuals to deliver balance sheet growth across key segments such as residential lending, despite the extremely tough operating environment for the industry more broadly.”
“At the same time, the Mutuals operating in a financial services industry facing unprecedented political and regulatory scrutiny, as well record low interest rates, strong competition and subdued demand for credit, have not been immune from the downward pressure on margins and profitability,” he said.
Key financial results for the Mutual sector for the year are:
- Residential lending increased by 7.3 percent (2018: 6.6 percent) to $95.50b
- Deposits grew by 8.5 percent (2018: 5.0 percent) to $98.97b
- Technology spend increased by 7.9 percent (2018: 4.3 percent) to $192.4m
- Net interest margin decreased by 5 bps (2018: increased 1 bp) to 1.99 percent
- Non-interest income decreased by 3.2 percent (2018: decreased by 2.3 percent) to $533m
- Impairment expenses remained flat at 0.04 percent of average gross receivables (2018: 0.04 percent
- Capital levels decreased by 24 bps to 16.73 percent (2018: 16.97 percent).
The Mutuals have chosen to focus on value to members, with customer service and pricing ranked by survey respondents as the most important drivers for growth, followed by increased investment in technology and the introduction of digital banking capabilities. However, evolving customer expectations and market conditions are forcing Mutuals to look outside their existing members for growth. 41 percent of respondents indicated that a merger presented a viable growth opportunity in the medium term, and 30 percent said they are seeking new ways to collaborate and exploring new business models to stay competitive
Brendan Twining, KPMG National Sector Leader, Mutuals, commented: “The primary consideration for Mutuals in today’s business environment is how to use their unique position in the market, and in particular their reputation for trustworthiness and operational agility. Mutuals have the opportunity to proactively take charge of their transformation journey in a simple and open manner, but they must remain resilient in the face of competitive and regulatory change.”
“It comes down to trust and transformation. Continued success will lie in the Mutuals’ ability to retain their strong presence as ‘purpose-driven organisations’ while innovating clear and compelling solutions for all customers,” he added.
About KPMG’s Mutual industry review 2019
The survey examines the performance and trends of Mutuals in Australia’s financial services industry for the financial year ended 30 June 2019. 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.