Crunch time for South West Credit, Beyond Bank merger

South West Credit Union and Beyond Bank indicated they were considering a potential consolidation after signing a memorandum of understanding in October last year.

The pair have since moved forward in the process, having completed their due diligence and submitted the required documents for regulatory approval.

South West Credit Union’s members will also need to approve the deal, with a vote to be held at a special general meeting on 21 March. Members are also able to vote remotely until 18 March.

If the merger is ticked off by both the regulator and members, it is expected to take place on 1 April.

In a document shared with members, the credit union has laid out its reasons for pursuing deal, imploring that the banking landscape is growing increasingly challenging.

“The board wants South West Credit to grow and fully realise its potential and to deepen its relationships with existing members and attract new members into the fold,” the document read.

“South West Credit is currently in a sound financial position to deliver on this potential, but the operating environment for small to medium sized credit unions remains difficult.

“Factors such as record low interest rates – which are generating the lowest interest margins in the history of Australian banking, high costs, an increasing compliance burden and the rapid advancement of technology are all contributing to an increase in merger activity within the industry.”

Over the past 10 years, it stated, the number of credit unions and mutual banks in Australia have more than halved from more than 150 to 58.

As such, recent deals have included the marriage of Teachers Mutual to both Pulse Credit Union and Firefighters Credit Co-operative, while Heritage Bank and People's Choice Credit Union are considering linking up. Newcastle Permanent and Greater Bank are also exploring a merger.

“South West Credit is not immune to the challenges faced by the remainder of the industry,” the document said.

“South West Credit is a relatively small financial institution and faces significant challenges in dealing with stronger competitors, providing the technology solutions now being demanded by consumers and the increasing burden of regulation and compliance.”

The credit union’s board has aimed to grow its scale and to improve its cost efficiencies, eyeing the merger’s potential to provide a larger balance sheet and to boost its competitive force.

The deal would combine South West Credit’s 13,000-odd members in Warrnambool, Victoria, and $7.7 billion in assets with Beyond Bank’s 275,000 customers and $8 billion in assets.

The credit union has claimed that the merger would create one of the larger customer-owned financial organisations in Australia, based on asset size.

However, if the deal doesn’t proceed, South West Credit has said it would continue to seek an alternative partner, but it “cannot guarantee that an alternative merger proposal would be as beneficial”.

“If the transfer does not proceed, it is likely that key strategic objectives (e.g. technology innovation and new products and services) and the desire to improve the contributions made to local communities, would be difficult to achieve over the longer term if South West Credit remains a stand-alone entity,” the document asserted.

“The board acknowledges the requirement for greater scale will remain, yet organic growth alone will be insufficient to achieve the necessary size to compete effectively over the long term.”

Other expected benefits include a more diversified funding base and lower cost of funds, larger-scale investment in technology, more resilience against adverse economic conditions and market risks, being able to meet demand for loans in the member base and having more staff on hand.

“The board believes that greater economies of scale are required to continue to offer market competitive interest rates and fees to offset expected profitability pressures arising from the current highly competitive, low interest rate, low growth environment,” the document said.

South West Credit members have also been told they’ll be able to access a more comprehensive range of services from Beyond Bank, such as wealth management, insurance, life membership packages and business banking.

They would also be able to use Beyond Bank’s branches, which extends across Victoria, NSW, South Australia, the ACT and Western Australia, as well as Australia Post’s Bank@Post service.

Additionally, Beyond Bank has a national call centre.

But the credit union has promised to retain its Warrnambool branch and local staff.

In a statement to Mortgage Business, a spokesperson from Beyond Bank said: “Both South West Credit Union and Beyond Bank Australia are respectful of this process and will provide further updates at the conclusion of the voting period.”

[Related: Auswide home loans up by 5.2%]