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Customers urged to ‘switch not bitch’ when it comes to banks

29 Nov 2016 9:06 AM - By Fleur Anderson, Financial Review

Easing the financial regulations imposed on customer-owned banks would challenge the dominance of the big four, their lobby group says.


The peak body representing credit unions, building societies and mutual banks argues this is a better idea than making it easier for new banks to join the market.


The federal government is considering reviewing the regulatory barriers to starting a bank after a parliamentary inquiry recommended more new entrants would inject more competition into the banking sector, which would be good for consumers.


But the Business Council of Cooperatives and Mutuals, which represents the non-bank sector, argues a higher priority should be implementing the House of Representatives’ economics committee recommendation to remove the capital raising barriers for mutual banks to ensure a level playing field with traditional banks.


‘‘This is key to improving competition in the Australian banking sector for the benefit of the consumer,’’ the council’s chief executive, Melina Morrison, said.


In the meantime, the council has launched a social media campaign, #switchnotbitch, urging consumers to be proactive about their financial arrangements without waiting for the establishment of a banking royal commission or banking tribunal.


At present, mutuals are constrained by the Corporations Act from raising investment capital without risking the loss of their not-for-profit co-operative status. Ms Morrison said a ‘‘modest’’ change to the Act would allow mutuals to issue investment capital without demutualising and would mirror changes in Britain and other countries.


Mutuals also face stricter capital requirements than their larger rivals and if those requirements were made the same, KPMG estimates mutuals could increase their loans by $25 billion to generate extra profits of $375 million. This would represent a 25 per cent increase in mutuals’ size and a 60 per cent increase in profitability.

A proactive approach is being urged

KPMG’s Mutual Industry Review released this month found mutuals’ balance sheet assets grew 7.8 per cent last financial year, compared with only 5 per cent for the overall banking industry. ‘‘Mutuals’ performance this year has improved on previous years. What’s particularly interesting this year is that we’ve seen some breakout strategies,’’ KPMG head of mutuals Peter Russell said.


He said mutuals were returning as a competitive force in the banking sector.


‘‘Some of the smaller mutuals have grown in the region of 20-30 per cent, and some of the larger mutuals have also grown strongly,’’ he said. ‘‘Mutuals are recognising that they can utilise their capital more efficiently, and have a very compelling value proposition in the current environment.’’


However, the Australian Prudential Regulation Authority has a 10 per cent cap for investment property lending by mutuals which Mr Russell argued was too low and effectively limited mutuals to a maximum of 1 per cent market share of investor lending growth.


Ms Morrison said if regulations and legislation were reformed so that credit unions, mutual banks and building societies could get better access to capital, it would mean increased competition and give consumers more choice.


‘‘Consumers need to understand there are alternatives to the traditional banking sector which put people and community before profit,’’ she said.


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