APRA figures for the year to September show that on almost every financial measure, the fortunes of the mutual lending sector have declined.
Australian Capital Territory New South Wales Queensland Victoria Tasmania South Australia Western Australia Northern Territory Property News Residential Mortgages
Latest APRA figures paint sober picture of mutual lending sector
Australia’s mutual lending sector – touted as a fifth banking pillar rival of the major banks – appears to have endured a less than productive time over the past 12 months.
The sector earns around three-quarters of its interest income from mortgage lending and has waged a prominent campaign reminding borrowers that mutual lenders act only in the interest of their members and, unlikely the major banks, are not conflicted when it comes to passing on rate cuts by also having to satisfy shareholder demands for rising profits.
The country’s biggest credit union, CUA, has run an advertising campaign urging customers to ditch the major banks with images depicting each of the four banks (NAB, ANZ, CBA and Westpac) as empty suits, with the slogan of the campaign being “Make the big banks invisible”.
In addition, credit unions and building societies compete strongly on low rate mortgage product offerings.
However, the sector does not appear to be gaining any ground on any of the second-tier banks (ING Direct, Bank of Queensland, Macquarie), let alone provide any real competition to the big four, according to the latest APRA figures.
APRA figures for the year to September show that on almost every financial measure, the fortunes of the mutual lending sector have declined: its share of the lending pie has shrunk, returns to shareholders have fallen and profitability has been eroded.
Some of this decline has been structural with total number of credit unions declining from 100 to 92 due to four credit unions converting to banks and three mergers while building society numbers have fallen by one, with the Heritage Building Society converting to a bank.
The effects of these lenders becoming banks and from industry consolidation resulted in credit unions' total housing loans decreased 12.5% to $33.6 billion over the year while building societies' total housing loans decreased 12.7% to $16.2 billion over the year.
These consolidations and ‘defections’ to the banking sector explain to a certain extent the large drop in net profits over the period – though not all of the decline - but also suggest that the industry has lost some of its more profitable operators.
The combined net profits after tax for credit unions fell 21% from $363.6 million in for the year to September 2011 to $286.2 million for the year to September 2012.
Building societies profits slump was even greater, falling 29% from $166 million to $117 million.
Some of this decline can be attributed to Heritage Building Society becoming Heritage Bank and not being included in the results for the sector - Heritage managed a $31 million profit result in its most recent annual report.
Looking at key ratios – return on equity has fallen 0.7% to 0.5% over the course of the year while return on equity has fallen from 8.6% to 6.7%.
Putting this all into perspective, the net profit earned by the banking sector – predominantly the big four banks – for the year to June (September quarter data has not yet been released) was $26 billion with the size of its lending book increasing by 7.5% to $1.33 trillion over the year.