Lending rate subsidy evident, report reveals
Lower interest rates and superior service are among the benefits provided under the customer-owned bank model, research commissioned by the Customer Owned Banking Association shows.
Findings showed that customer-owned bank members had the opportunity to receive mortgage interest rates below the market rate, estimated to be saving members over $1,500 per year.
The report, Sector Impact Assessment of Customer Owned Banking in Australia, conducted by KPMG, found that the country’s 61 customer-owned banks have 5 million customers and represent 70% of authorised deposit-taking institutions (ADIs) in the market.
Customer-owned banks are responsible for 5.6% of mortgage lending, well above their 3.5% share of overall market assets, findings showed.
Despite total market assets being lower than the major banks ($158.8bn compared to $4.370bn), findings also showed customer-owned banks contribute proportionately more to people and communities.
COBA CEO Michael Lawrence (pictured above) said that while credit unions, building societies, and mutual banks were known for putting customers first and giving back to their communities, COBA commissioned the research to quantify the impact its members were making.
The report findings provide “strong empirical evidence” of the extent to which COBA members put people before profits, he said.
“Our sector has a large and growing footprint in Australia, as customers realise the benefits of banking with purpose,” Lawrence said.
Lending rate subsidy evident
COBA said that the report found that the customer-ownership model translated into better pricing and service for customers, including an implicit lending rate subsidy to members.
“KPMG estimates this subsidy to equate to a 0.3% discount to the market interest rate – or more than $1,500 in interest annually on a $500,000 mortgage,” COBA said.
The customer-owned bank sector’s focus on helping members own the home they live in translates to 77% of lending to owner-occupiers and 20% of lending to first-home buyers, compared to 67% and 16.5% for all ADIs, COBA said.
In addition to benefits for borrowers, the report findings showed that customer-owned banks provide demand for skilled employees in regional locations.
With 720 branches throughout Australia, the sector operates 18% of total bank branches, and over one in five branches are in regional areas, representing a “significant investment” focusing on -in-person banking services, COBA said.
MPA previously spoke to Newcastle Building Society chief executive Andrew Haigh, who said that despite the traditional bank model shifting away from local branches, similar to Australia, there continued to be customers who valued face-to-face interaction.
Customer-owned banks also contribute to sector-based and geographic communities, through donations to charitable organisations and community sponsorships.
The report findings showed the sector distributed around $6 per member per year to charitable organisations and community sponsorships. With a membership of around five million, this was equivalent to around $30m injected directly into the community, COBA said.
By comparison, analysis suggested that financial community contributions across the four major banks were an average of around $2 per customer.
Federal Minister for Regional Development, Local Government and Territories and Member for Eden-Monaro Kristy McBain said the report recognised that customer-owned banks were investing in regional Australia.
She acknowledged the increase in branch closures in regional communities, which she said had “significant economic and wellbeing impacts” on customers and restricts access to financial services.
“But this report shows customer-owned banks are actively working with regional communities to enhance their services, and this investment is improving community cohesion and engagement, creating jobs and skills opportunities, boosting local economies, and ensuring that local businesses can access the services they need to operate,” McBain said.
KPMG Australia partner and chief economist, Dr Brendan Rynne, acknowledged that the number of customers, assets, total loans and revenue across customer-owned banks was “collectively relatively small”. But when measured by the number of banks, branch footprint and presence in regional locations, the mutuals sector was large, he said.
“Customer-owned ADIs are considered the primary financial institution by over 10% of the adult population and provide an unparalleled demand for skilled employees in regional Australia,” Rynne said.
KPMG found that the customer-owned bank sector contributes $2bn to Australia’s GDP, considering wages, profits and taxes. The GDP contribution was noted to be above that of aquaculture, fishing, forestry, gas supply services, shipping or petroleum and coal product manufacturing.
Do you agree that customer-owned banks provide superior and/or unique benefits to clients, such as lower mortgage interest rates? Share your thoughts in the comments section below.
