Credit Union CEOs dressed as clowns – David White, Credit Union SA, Peter Evers , People’s Choice Credit Union, Robert Keogh, Community CPS Australia and Costa Anastasiou, Police Credit Union, get ready for the Credit Union Christmas Pageant. Picture: Tait Schmaal Source: the Advertiser
AUSTRALIA'S credit unions are "feeling the heat of competition" from the big banks "but are doing well" says KMPG banking partner Martin McGrath.
The mutuals sector of 10 building societes and 103 credit unions had a strong performance in the year to June 30 with credit unions increase net profit by 18 per cent, KMPG’s Building Societies and Credit Unions 2011 survey said.
Building societies, a smaller sector, saw a net profit decrease of 5.1 per cent.
While competition was "fierce" for retail deposits between big banks, regionals and mutuals, mutuals experienced strong growth in deposits for both building societies (7.9 per cent) and credit unions (8.0 per cent), the report said.
"their bad debts are remarkably low and post the GFC they didn’t see a blip," Mr McGrath said, reflecting the mutuals’ exposure to a strong housing sector.
He added that the mutuals were flush with liquidity due to a strong growth in retail deposits from where it draws most of its capital.
The mutuals’ results were strong, particularly in a year when loan growth across the economy has been subdued, KPMG said.
"to some extent, the performance reflects their members loyalty but it may also reflect a greater awareness of the sector following debate about a fifth pillar and increased marketing by the sector," he said.
This is in line with the major and regional bank sectors which also posted increased profits, largely off the back of reduced bad debt expenses and carefully managed costs, he added.
Strong profits were built on asset growth, high levels of capital, continued low bad debts and the absence of significant one-off costs, offset by the continuing impact of competition on interest margins, Mr McGrath noted.
The sector continued to hold its place in the market, with both building societies (5.5 percent) and credit unions (8.0 percent) experiencing increases in total assets.
Within the sector the top five credit unions, which includes Adelaide-based People’s Choice at number 2, increased market share from 42 to 48 per cent.
During the year four mutuals applied to become mutual banks, reflecting a desire to be recognised as the equivalent of banks, Mr McGrath said.
"the reality is, the mutuals have been regulated by APRA for many years and the adoption of bank status simply seeks to ensure this is recognised by the community at large," he said.
Looking ahead, Mr McGrath expected to see continued mergers and takeovers in the sector and more activity on the sector differentiating its proposition from the large banks, he added.
The analysis follows KPMG’s survey of regional banks released last week which showed a combined growth in operating profit before tax of 16.1 per cent to $828 million, as three of the four lenders posted profits: Suncorp Bank, Bendigo and Adelaide Bank and Members Equity Bank – while Bank of Queensland was hit by losses from three large troubled loan exposures and the Queensland floods.
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