New evidence: Credit unions and building societies returning profits to members

24 October 2006

A new report has found that credit unions and mutual building societies are directing profits from asset and deposit growth into lower fees and more branches for their members.

In a stark contrast to the record profits expected to be announced by big banks in coming weeks, a new independent report released today by KPMG[1] has found that both credit unions and building societies have experienced a decline in the ratio of non-interest income (income derived from fees) compared to total assets.

KPMG points out that a decline in fee income is not a sign of declining performance but rather of the sector’s focus on customer service and on returning benefits to members in the form of lower fees and better service.

KPMG’s survey of most of the top 66 credit unions and building societies also reports that despite consolidation in the sector, the number of branches and the staff providing service to members has increased….“in line with the desire to provide services to existing members and broaden membership and distribution networks”.

Adrian Lovney, General Manager of Abacus, Australia Mutuals, the association for mutual building societies and credit unions, said the KPMG report is concrete evidence of the different approach taken by credit unions and mutual building societies.

“Mutual building societies and credit unions are very different to the big banks. Our members are our customers and our shareholders,” Mr Lovney said.

“We don’t need to siphon off profits to meet the increasing demands of external shareholders. We’re able to focus 100% on the needs of our customers and deliver them fairer fees and better service.”

The KPMG Report also found that consolidation among credit unions and building societies has placed the industry in a much stronger position to deal with the competitive challenges that it faces.

In 2005 the largest credit union had a market share of 12 per cent with 45 percent of assets outside of the top 10 credit unions and 37 per cent concentrated in the top 5. By 2006, the largest credit union had an 18% share, only 40% of assets were outside the top 10 and the top 5 now have a 43% market share.

Mr Lovney said big, strong credit unions and building societies are good for the industry.

“Big credit unions are still credit unions. Big mutual building societies are still mutual building societies. They still exist 100% for the benefit of their members, and not to generate profit for external shareholders,” Mr Lovney said.

“They have a strong market presence while maintaining an unambiguous focus on their members. That’s very different to the for-profit banking sector.

“Regardless of size, credit unions and building societies continue to top customer satisfaction surveys, which is the best way to judge whether we are providing a different kind of banking and giving our members what they want.”

The report is available at www.fips.kpmg.com.au

Media contact:

Julie Sheather - 0409 514 643; 02 8299 9024

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