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Mutuals step up mortgage lending

The property market boom has boosted the home loan businesses of Australian mutual banks, according to a new analysis.

A review on the mutual industry from KPMG has noted mutual banks, building societies and credit unions have raised their residential lending by 5.5 per cent year-on-year, to $105.7 billion for the 2021 financial year.

Overall operating profit before tax across the 46 mutuals that were analysed grew by 38.6 per cent to $685 million for FY21, with total assets up by 7.4 per cent to $148.2 billion.

KPMG reported strong growth in the housing market and a reversal of COVID-related loan loss provisions from the year before had boosted the performance of mutuals.

Hessel Verbeek, national sector leader, mutuals at KPMG commented: “The mutuals have felt the ongoing impact of the COVID-19 pandemic, however the high growth in the Australian residential housing market in combination with the strong balance sheet position of the mutual sector has boosted mortgage lending performance.

“The strong increase in the mutuals’ operating profit before tax was primarily due to lending growth achieved in 2021, along with the absence of the significant loan loss provisions that we saw in 2020.

“These growth drivers offset the continued pressure on net interest margins resulting from low interest rates and strong competition between lenders. They are also helping to offset significant ongoing expenditure on technology, people and regulatory compliance.”

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Net interest margin had risen by 2 basis points, to 1.81 per cent, in contrast to the 12 basis point drop in FY20.

The report also noted a positive outlook across the sector, with 78 per cent of survey respondents stating they feel confident in their three-year growth prospects, compared to 63 per cent in 2020.

The top three priorities for mutuals were found to be maintaining profitable and sustainable growth, digitising their business and keeping up with the pace of external change, such as regulations and technological developments.

Just under half (46 per cent) said they expect to embark on an end-to-end transformation of the business, a sharp rise from 26 per cent in 2020.

“The mutuals in Australia have a great legacy as a collective, but face a number of strategic and financial challenges including stiff competition, the rapid evolution of customer expectations, low interest margins, and high costs of operation and regulatory compliance,” Mr Verbeek said.

“How you grow matters, and the mutuals are seeking to address these challenges head-on as they continue to evolve and leave a positive impact for their members and the wider society.”

[Related: ScotPac breaks into mortgages]

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