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Connexus : Issue 36
calls for the federal government to maintain instruments such as a deposit guarantee as a means of protecting mutuals' competitiveness. Covered bonds are another potential source of funding the government is backing. However, the chief executives interviewed for this story are of the view that the major banks will dominate the space. Ryan sums up the mood in suggesting the bonds are "something the four majors are more interested in". "They would be better concentrating on further opening up the AOFM and increasing the funding access there," he says. Abacus remains hopeful that, over the longer term, mutuals can use an aggregated model to tap into covered bonds (see Waiting on Covered Bonds, page 34). The recent positive growth figures raise the question of what building societies and credit unions can do to turn a blip into a long-term trend. At KPMG, McGrath says various mutuals will define success in different ways. Traditional, smaller credit unions will probably be content to keep providing excellent service to existing members. Some larger institutions are more likely to be aggressive in their pursuit of market share. "They're more ambitious and they're looking for scale," he says. He warns all mutuals not to forget their time-honoured market differentiator: close ties with members. "It's interesting seeing some of the advertising campaigns out there at the moment where they are pointedly advertising that you don't have to be in this profession or that geography to be a member. They are kind of loosening the bond," says McGrath. While CUA, the nation's largest credit union, treats with caution any discussion of mutuals becoming a fifth banking pillar, Hadley backs the notion of large 'super mutuals'. "As an aspirational goal, potentially one or a number of super mutuals could emerge to provide some genuine second- tier competition," he says. "And that's certainly a space we would like to see ourselves fill." He envisages such a scenario occurring through further industry mergers, and tips the total number of mutuals to soon fall below 100. "One of the reasons we are starting to see some better growth figures is that efficiencies come with consolidation, and efficiencies mean you can deliver better pricing and products and lower fees. As long as we can keep our proposition up there, we have the opportunity to take the challenge to the big four banks." At Australian Central, Evers agrees that building societies and credit unions can be more aggressive around their growth aspirations. Such a grab for greater market share must come on the back of excellent financial products and great ser vice through a mutual model that promotes its values and member focus. "Those sorts of things have always been said, of course. But we all have to step up and be far more in the market right now with promotional campaigns." This proactive stance should extend to practical measures such as ensuring frontline staff are well prepared to handle queries from prospective new members. If not, the impetus of recent growth gains will be lost. "We can't sit back and think about how great one quarter of success was," says Evers. "Competition is real, it is severe and it is over the long term. If we start getting traction, the major banks will try hitting us harder. So we must be really strong on this." -- Cameron Cooper is a freelance writer. IMB Building Society net profit after tax for the half-year to December (up 12%) $15.1m "If we start getting traction, the major banks will try hitting us harder." -- Australian Central Savings & Loans managing director Peter Evers FEATURE FUNDING connexus www.abacus.org.au 32