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COBA Comments | Are fewer credit unions a sign of decline?

COBA’s Director of Strategy Sally Mackenzie explains why customer owned banking institutions merge together

The number of credit unions has almost halved over the last 10 years. Is this a sign of a sector in decline?

No. It does signal some reduction in diversity in the customer owned banking sector but consolidation in a growing sector is a long-term trend.

More than four million Australians already choose to bank with a customer owned banking institution and the sector has been growing at a steady pace.

The picture is fewer credit unions in a growing sector.

COBI and Assets Graph

Source: APRA QADIP

Customer owned banking institutions have grown their total housing loan book by 8.1 per cent over the past year. This is more than double the 3.7 per cent for the ‘Big Four’.

Australia’s credit unions, mutual banks and building societies now have a combined $100 billion in deposits and almost $118 billion in total assets. 

With such strong figures for the sector, why do we see a continuing trend to fewer credit unions?

A strategic option for all credit unions, building societies and mutual banks is a merger with a like-minded organisation. Customer owned banking institutions typically merge for strategic reasons and to gain access to economies of scale and increase the geographic spread of their services into more areas of Australia.

Customers of the merged entity can expect to benefit from capacity to invest more in technology and a broader range of products and services.

Mergers are also a response to rising regulatory compliance costs that come with running a banking institution. Customer owned banking institutions are subject to the same strict standards as investor owned banks like the ‘Big Four’. However, the cost of meeting these standards is proportionately much greater when you’re a smaller institution than the ‘Big Four’.  

The loss of diversity that is by-product of mergers is regrettable but a stronger sector overall is good news for consumers. This is why policy makers must prioritise measures to encourage competition, because consumers are the ultimate winners from a diverse, vibrant and competitive market.

Mergers are a sign of a sector that is evolving, not shrinking. When institutions merge it is another sign of a sector putting customer interests first and providing real competition and choice to more Australians.

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