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Connexus : Issue 37
Connexus 7 www.abacus.org.au CEO COMMENT CEO comment Interest in margins Mutuals and banks can expect to experience pressure on interest margins for some time to come, according to an industry expert. Gary Eggert, executive officer of Credit Union Financial Support System Limited (CUFSS), says the continuing effects of the global financial crisis and the Reserve Bank's lowering of official rates by 4.2 per cent since the crisis began has affected profitability for all authorised deposit-taking institutions. "The margin went down, so the profitability went down. It's probably cost the mutual sector about 40 basis points across the board," says Eggert. "Everyone's out there chasing deposits at the moment, particularly the banks, and if you don't keep your eye on your interest rate margins, it'll affect your bottom line and, eventually, your capital." During the March quarter, the average net interest margin for the mutual sector increased by 2 basis points to 2.89 per cent, according to a report by CUFSS, the emergency liquidity support system for the mutual sector. "This is in spite of the November official interest rate rise of 0.25 per cent flowing through to mortgage loans in the quarter and shows the pressure remains on retail deposits due to strong competition in the banking sector," the report says. "The lesson going forward is that you've got to keep a very close eye on your interest margin," says Eggert. "Rates are coming up at the moment generally, but margins haven't got anywhere near recovery." Hard work pays off Australia's mutual banking industry finished 2010/11 in good shape. Market share is up: mutuals are writing over 10 per cent of all mortgages in Australia, and growing at roughly three times system growth. Retail deposit growth has also been strong, exceeding growth rates for the big banks and their regional colleagues. Through the year mutuals have been steadily building their profile in the market. Community awareness is definitely up -- during last year's industry promotion campaign we recorded an astonishing 30 per cent lift in top of mind awareness for mutuals -- and media and political interest in our industry remains strong. Of course, behind the nice PR, the hard work of managing tight margins, delivering quality member service, a tough regulatory and funding environment and highly competitive markets, continues for mutuals. This edition of Connexus features many examples of this work, from meeting member demand for 'green finance' to new technology to fight fraud and improve services. We also feature perspectives on one of the big changes in our industry this year -- the emergence of mutual 'banks'. Abacus considers this a positive opportunity to increase awareness and understanding of the mutual banking model. Like all change it does raise some challenges and one of these is finding a clear, consistent way to present customer-owned banking as a united force. Abacus has been working behind the scenes to develop an inclusive, snappy 'descriptor' for our sector that will support reform and advocacy work. It will also feature in the next phase of the mutual industry promotion project. As we go to print our members are close to confirming a multi- million dollar investment over the next three years in advertising and awareness. With the competition debate raging and consumers searching for alternatives we have a real opportunity to make inroads on stubborn misconceptions and expand our market -- a challenge that Abacus relishes. And our feature on attracting younger members is a timely reminder of the work we have ahead of us, and why these investments are so important. As we know, mutuals are skewed to an older demographic. Attracting and retaining the next generation of customers is an exciting challenge -- one that demands new thinking, service innovation and quality and hard work to build our general community profile. I'm very optimistic about the opportunity for mutuals to tackle these issues. Abacus is looking forward to being part of this next stage of growth and change, and to collaborating and supporting our members' success. Louise Petschler, CEO, Abacus