Mutuals’ writing more loans and banking more deposits

Lending at Australia’s mutual banks, building societies and credit unions (the "Mutuals") grew 7.88% to $139.6 billion in the 2024 financial year, and deposits grew by 5.11% to $137.8 billion despite the challenging financial environment. However, operating profits were flat year-on-year, increasing just 0.32 percent to $775.2 million, compared to last year’s 27% jump (to $772.7 million). These are among the headline results of KPMG’s Mutual Industry Review for the 2024 financial year, an annual survey examining the performance and trends of Mutuals in Australia’s financial services industry.

The flow-through impact of high interest rates on Net Interest Margin resulted in an increase of 45bps to 2.45%. Offsetting this, cost increases experienced during the year have resulted in the Mutuals’ cost-to-income ratios increasing by 292bps to 78.5% (2023: 75.6%).

The sector’s capital adequacy increased by 11bps to 17.71% (2023: 17.6%) providing the Mutuals the ability to continue to invest in the business to enhance resilience, meet future regulatory requirements and modernise and simplify core member-facing processes.

Darren Ball, KPMG National Sector Leader, Mutuals, commented: “The economic challenges of recent years show no sign of subsiding with continued softening economic conditions. Despite the recent high inflation levels reducing significantly over the last 12 months, there is still the need to see further and sustained reductions before the interest rate decrease cycle commences. There has been no abatement to the cost-of-living pressures on local communities.”

“This means the Mutuals’ must expand their focus beyond just supporting the communities they serve. They must balance this against the need to reduce costs, expand service offerings, modernise and simplify processes and protect members from the ever-increasing threat of cyberattacks and financial crimes,” he added.

Key financial results for the mutual sector for the 2024 financial year are:

• Operating profit before tax increased by 0.32% to $775.2m (2023: up 27% to $772.7m)
• Lending increased by 7.88% to $139.6b (2023: up 6.1% to $129.4b)
• Deposits grew 5.11% to $137.8b (2023: up 4.4 percent to $131.1b)
• Non-interest income decreased by 2.02% to $310.7 million (2023: down 17 percent to $317.1m)
• Net interest margin increased by 45 bps to 2.45 percent (2023: up 18 bps to 2%)
• Cost-to-income ratio increased by 292 bps to 78.5 percent (2023: down 749 bps to 75.6 percent)
• Average capital adequacy ratio increased by 11bps to 17.71 percent (2023: up 74 bps to 17.6 percent)
• Increase in credit provisions by $7.9m to $187mm (2023: $179.1m)
• 4 mergers completed (2023: 2)

The survey found Mutuals have several key priorities as they look toward the future:

1. The top priority for the next three years, selected by 91% of survey respondents, is maintaining profitable and sustainable growth. The top contributors to growth will be better product pricing (69%), customer centricity and the ability to offer new/tailored products (66%), and better customer service (54%).
2. The equal second priority is digital transformation (32%) with the top strategies for improving customer experience and cost being reducing ‘points of friction’ for customers (80%),  automating workflow (71%) and improving web design (46%). The Mutuals also see several tech challenges to overcome including cyber security (86%), digitisation of products (49%) and productivity improvement (35%).
3. The equal second priority (selected by 32% of respondents) is market share growth (attracting new members). Mutuals consider the big 4 banks as their top competition (61%), followed by other banks (29%) and other mutuals (6%).
4. Rounding out the top three priorities is mergers. Merger activity continues to on the radar for the Mutuals with four mergers taking place in the past financial year. However, while one in four (26%) respondents said they are actively considering the possibility of a merger (up from 19% in 2023) – slightly fewer (17%) anticipate being involved in a merger next year (down from 19% in 2023).  

The Mutuals are slightly less positive about the sectors outlook than last year, in the face of ongoing market and economic uncertainty. The number of survey respondents saying they feel confident in their three-year growth prospects fell to 60% (compared to 73% in 2023).

When it came to the overall risks that they face in the coming three years, Mutuals believe IT and cyber risk to be the top risk (selected by 40% of survey respondents), followed by funding sourcing and margin management (26%) and compliance and regulations (11%). The number of mutuals which  consider themselves prepared for a cyber event dropped to 76% (down from 81% in 2023).

Darren Ball said: “Clearly digitisation will play a role in helping Mutuals continue to serve their members and the wider community. Mutuals can use technology to manage their regulatory requirements, protect against the threat of cyberattacks, and harness the power of AI through a focus on the quality of data.”

“Mutuals that embrace the role of technology in meeting these challenges and see opportunities through leveraging their strong connection to the community, sense of purpose, and ability to embrace the possibilities of technology , will continue to grow sustainably,” he added.  

The survey examines the performance and trends of Mutuals in Australia’s financial services industry for the 2024 financial year. The mutual sector covers Australia’s mutual banks, building societies and credit unions. The survey also considers the responses to a qualitative questionnaire covering the risks, challenges and opportunities facing the industry, and includes a number of articles by KPMG authors.

Ashford Pritchard
KPMG
0411 020 680
apritchard2@kpmg.com.au