Strong growth and a positive outlook for Australia’s mutuals

Australia’s strong economy and housing market, and a reversal of the COVID-related loan loss provisions from 2020 is reflected in the operating profit of Australia’s mutuals*. Overall operating profit before tax increased by 38.6 percent to $685.0m in the 2021 financial year, with total assets up 7.4 percent to $148.2b.

The 2021 financial year was a test of resilience for business, communities and individuals, and these results tell a story of purposeful growth in turbulent conditions. 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. This is reflected in their operating profit before tax.

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.

Our survey shows the mutuals remain positive (78 percent) in the face of ongoing market and economic uncertainty feeling confident in their three-year growth prospects, a notable increase from 63 percent in 2020.

Their top three priorities are maintaining profitable and sustainable growth, digitising their business, and keeping up with the pace of external change including regulations and technological developments. Just under half (46 percent) of respondents expect to embark on an end-to-end transformation of their business, a sharp increase from 26 percent in 2020.

Despite a great legacy the mutuals face strategic and financial challenges including stiff competition, the rapid evolution of customer expectations, low interest margins, and high costs of operation and regulatory compliance, but they feel confident to address these.

The unique mutual model provides specific opportunities as well as challenges, as the mutuals chart their path to the continued delivery of member value. The success of mutuals lies in their strong member bond and affiliation as ‘purpose-driven organisations’, providing value to the community and to members alike.

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

  • Residential lending increased by 5.5 percent (2020: 5.5 percent) to $105.7b
  • Deposits grew by 8.1 percent (2020: 10.3 percent) to $117.2b
  • Technology spend increased by 18.2 percent (2020: 13.4 percent) to $274.6m
  • Net interest margin increased by 2 bps (2020: dropped 12 bps) to 1.81 percent
  • Non-interest income decreased by 3.8 percent (2020: decreased by 0.5 percent) to $412.5m
  • Impairment expenses decreased by 14 bps to -0.01 percent of average gross receivables (2020: increased by 8 bps) driven by provision writebacks
  • Capital levels decreased by 37 bps to 16.29 percent (2020: decreased by 31 bps).

KPMG Australia’s Mutuals Industry Review 2021 is based on the financial results of 46 mutuals (representing over 98 percent of the sector by total assets and profit before tax) as well as a qualitative survey, which asked mutuals to share their views on the risks, challenges and opportunities they see facing the industry.

*mutual banks, building societies and credit unions

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