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Connexus : Issue 38
• Many customers are genuinely seeking a values-based alternative to the major banks. • There is still enormous potential to gain a greater share of wallet with existing members. Heritage Building Society, based in Toowoomba, Queensland, is one strong performer that shows no signs of slow ing down. It plans to open new branches this financial year as it targets growth after announcing a 12th consecutive year of record pre-tax profit in 2010-11. The pre-tax profit was $43.9 million, a 3.7 per cent increase on the previous year. after tax, its profit was $32 million, a rise of 7.2 per cent. Despite such success, CEO John Minz echoes the concerns of others in the survey in highlighting the often competing goals of competition versus stability in the nation’s banking sector. He concedes that government and regulators have show n leadership in moving to shore up the banking system in the wake of the global financial crisis. “But the unintended consequences of most of the elements of their packages ended in favourable treatment of the major banks. We saw that with the wholesale government guarantee. We’ll see it with covered bonds. and we saw it with the major banks lobbying with the Financial Claims Scheme for a lower cap on the deposits guarantee.” Minz wasn’t the only CEO in the survey to suggest that regulators often try to implement a one-size- fits-all policy. “That’s not always possible in any industry, let alone the banking industry.” at Greater, Magin also laments that “we’re always getting new regulations coming in” – voicing another issue that came through strongly in the survey. “If the government wants to promote the mutual sector as the fifth pillar, there needs to be some thought given to how it can remain competitive in the face of all these regulatory changes,” he says. “I don’t think there has ever been a regulatory change that has reduced costs. The impost on the smaller financial institutions is larger than it is for some of the banks, and some of the changes have unintended consequences of giving the majors more competitive advantage than what they currently have.” The view holds sway with abacus. It has argued strongly for a range of pro- competition elements in the banking sector, including backing moves to improve the capacity for consumers to switch accounts between financial institutions without having to visit their existing bank. abacus also supports covered bond issuance structures using 30 www.abacus.org.au FEATURE www.abacus.org.au 30 Connexus CEO SURVEY “I don’t think there has ever been a regulatory change that has reduced costs.” Banking on a new direction The trickle of institutions wanting to become mutual banks is likely to gain momentum if the sentiment of industry CEOs is any guide. Of the 45 CEOs who responded to the Abacus survey, 85.8 per cent felt the likelihood of more mutual banks was either ‘very high’ or ‘high’. Just 4.8 per cent thought the prospect was ‘low’. Victorian-based mecu became Australia’s first mutual bank on September 1 after receiving approval from the prudential regulator. It has been renamed bankmecu. “ We’ve been very busy getting the name out there,” says former CEO Phylip Doughty. He has no doubt more mutual ADIs will follow suit and adopt the ‘bank’ tag as they seek to grow public awareness and take on the major banks under reforms the federal government announced last year. “We’re going to see more credit unions, and probably building societies, take up a bank designation. We’re going to have maybe more than a handful of... larger mutuals calling themselves banks. I think that’s going to change the face of the mutual sector.” Queensland Teachers’ Credit Union Limited will become a mutual bank in October while Heritage Building Society and Teachers Credit Union in NSW will both put the idea to their members in October and November respectively. Teachers Credit Union CEO Steve James told Connexus that mutual bank status “will appeal to a wider range of our educators target market, especially the younger demographic” while allowing his institution to retain its member- driven values. The model provides the best of both worlds, he says. “From a membership viewpoint, we’ll be looking to maintain the best of our credit union history over the last 45 years and [also get] the best of what a bank can offer. I think it will make us a bank with a difference. “Our 400 staff are totally behind it, as is the board of directors. It just gives a clearer message about what we do.”