Credit unions, building societies stable & prudent
24 September 2009
The Reserve Bank’s latest Financial Stability Review out today confirms the high prudential standing of credit unions and building societies.
The RBA has noted the resilience of the Australian financial system, which is a well-capitalised banking sector performing strongly compared to other economies.
Australia’s mutual banking providers - credit unions and mutual building societies - are even more strongly capitalised than banks and have shown themselves to be prudent and responsible lenders.
Credit unions’ capital ratio is 16.4 per cent and building societies’ capital ratio is 15 per cent compared to the banks’ capital ratio of 11.3 per cent.
“Almost all the capital of credit unions and building societies is the highest quality Tier 1 capital because it is mainly comprised of retained earnings,” said Louise Petschler, CEO of Abacus – Australian Mutuals.
“Housing loan arrears for building societies are running at around half the rate of banks’ home loan arrears and for credit unions, home loan arrears are under a quarter of the banks’ rate.
“For credit unions’ arrears to be at 0.15 per cent is an outstanding performance, and compares favourably to increasing arrears for banks at 0.62 per cent.
“The arrears rates for credit unions and building societies are around the same levels as in 2005 despite the global financial crisis and economic downturn,” Petschler said.
The RBA’s report says major banks have increased the interest rate margin on domestic lending from 2.11 per cent to 2.24 per cent while increasing their share of new owner-occupier loan approvals to 81 per cent, from around 60 per cent in mid 2007.
The RBA notes mortgage originators, smaller banks and, ‘to a lesser extent’, credit unions and building societies have lost market share since 2007. However, Abacus notes mutual growth.
“Credit unions and building societies have been winning back market share”, said Petschler.
“Credit union and building society share of the number of new owner-occupier lending commitments was up from 6.8 per cent in July 2008 to 7.9 per cent in July 2009, (according to ABS data).”
“In a market increasingly dominated by the big four banks, credit unions and mutual building societies are continuing to deliver real competition and choice.”
For more information:
Pamela Eldridge
Senior Adviser – Media
02 8299 9024, 0423 843 790
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