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Connexus : Issue 36
the number of new customers," says chief executive Don Magin. "A lot of our lending comes from existing borrowers topping up their loans. But, in dollar terms, the amount of borrowing from new customers in January was four times what it was in January last year." One of the contributing factors, he says, was the Commonwealth Bank's cont roversial decision last November to raise its standard variable mortgage rate by 45 basis points -- almost double the Reser ve Bank's increase of 25 basis points. "We saw a doubling of our home loan enquiries on the day following that CBA statement," says Magin. "It's one of the few times we've seen people react. There's been a lot of negative bank sentiment in the past, but it has been sentiment rather than action." Another factor has been the Greater raising awareness of itself with its celebrated advertising campaign featuring American comedian Jerry Seinfeld. The sector's national 'Comes back to you' ad campaign and outspoken political support has also assisted mutuals. "From our point of view, all the ducks have happened to line up at the right time," says Magin. Confirming trends The mutual banking sector grew 10.7 per cent in 2010 to have total assets exceeding $77 billion, according to APRA The mutual banking sector grew 10.7% in 2010 to have total assets exceeding $77 billion. Over the same period, the banks' resident assets grew 4.4 % FEATURE FUNDING 25 connexus www.abacus.org.au The question was raised when Martin North, head of Fujitsu Australia's consulting arm, urged Australian mutuals to follow the lead of their European counterparts and become more ambitious about growth. Responses have been mixed. Robert Ryan, chief executive of the IMB building society, says it should not be forgotten that a prudent approach to expansion has been one of the mutuals' great strengths over many years. "It has stood us very well when you have a look at the global financial crisis," he says. "There were no issues in that period in terms of our arrears history or losses. I can't see that the sector will move away from a very prudent credit history, but I do see that it has the capacity to grow." Greater Building Society chief executive Don Magin says the issue underlines the importance of scale. "We have [been fairly aggressive], and that's the difference between some of the larger mutual building societies and credit unions and the smaller guys," he says. "It's much more difficult for the smaller institutions because their cost of funds is probably higher than ours. The infrastructure they have to establish to comply with the regulatory framework means their overheads are going to be higher. For some of them, it's much more difficult to go on fairly aggressive growth strategies." Magin says Greater has further capacity to expand, which depends on its internal risk appetite. "We've always been a fairly conservative organisation when it comes to risk, and I don't see that changing dramatically over the next couple of years. But I think there is an opportunity for us, given our financial strength and our capital adequacy, in particular, to be a bit more aggressive about growth." Australian Central Savings & Loans managing director Peter Evers supports North's views, saying the sector has been too comfortable for too long. "We have rested on our laurels with a safe, comfortable relationship between boards and management and members as shareholders. Our shareholders -- our customers -- don't challenge us to improve our performance, and the industry as a whole needs to reflect on where it's at and how real we are about wanting to grow." Prudence vs ambition Is the historical prudence of mutuals holding them back in their battle with the big banks for market share?