Australian mutuals outperform broader banking sector 

Australian mutual banks, building societies, and credit unions (mutuals) have outperformed the broader banking industry when it comes to total gross loan growth in 2023, according to KPMG’s Mutuals Industry Review 2023.

The accounting firm’s report found that the mutuals achieved a 6.1 per cent increase in total gross loans, up to $129.4 billion, compared to a total loan increase across all ADIs (authorised deposit-taking institutions) of only 4.8 per cent.

The report found the mutuals’ high concentration on residential lending, 93.6 per cent in 2023, was consistent with previous years, 93.2 per cent in 2022, as survey respondents ranked increasing residential lending as the biggest driver of growth.

The digitisation of banking services and deposit growth were labelled the second and third greatest drivers of growth, respectively.

Over three-quarters of survey participants indicated that competitive pricing was the key contributor to their financial performance and market share growth in 2023, with the increased economic uncertainty leaving mutuals having to balance the “value provided to members against the costs of operating in an increasingly complex environment”.

KPMG’s national sector leader, mutuals Darren Ball commented: “Many of the sector-wide challenges that the mutuals have been facing, such as the need to continue to invest in digital transformation, innovation, and meeting the increasing regulatory compliance, whilst true for all banks, continue to impact the mutuals disproportionally due to their relatively small size.

“Despite this, it has been a positive year for the mutuals sector. By and large, the sector has navigated the impact of the fixed-rate mortgage cliff with the first wave of fixed-rate loans from 2020 and 2021 needing to be refinanced.

“This has not had a significant impact on loan performance this year, however, the concentration of residential lending within the sector means that this will continue to be a focus into 2024.”

Despite an expected increased pressure on asset quality, the report found that it had remained stable during 2023, with a provision for doubtful debts to gross receivables ratio of 0.15 per cent, only up slightly from 0.14 per cent in 2022.

The report also revealed the top 10 mutuals in 2023 by asset size, with the two mutual mergers over the year at the top, Heritage and People’s Choice (merger of Heritage Bank and People’s Choice) at approximately $24 billion and Newcastle Greater Mutual Group (merger of Greater Bank and Newcastle Permanent) at approximately $20 billion.

Following the recently merged groups were Great Southern Bank at around $19 billion, Teachers Mutual Bank and Bank Australia at approximately $11 billion, and Beyond Bank at around $9 billion.

Mr Ball stated that mutuals faced the obstacle of continuing to grow in the face of uncertainty.

“The challenge to the mutuals for a purposeful future is maintaining this year’s results in the face of increasing demands from members as they navigate the impact of sustained high inflation and significant cost-of-living pressures, demands from the regulator, and increasing community expectations on ESG and data protection,” he added.

“Mutuals that embrace these challenges and see opportunities through leveraging the strong connection to the community, sense of purpose, and ability to embrace the possibilities of generative AI will continue to grow sustainably.”

[Related: Mutual lender reports strong growth following merger]