Relative to their financial footprint, customer-owned banks provide support beyond their size to local communities and make a significant contribution to the national economy, according to new research commissioned by the Customer Owned Banking Association (COBA).
The KPMG report Sector Impact Assessment of Customer Owned Banking in Australia found that the 61 customer-owned banks have five million customers and represent 70 per cent of Authorised Deposit-taking Institutions (ADIs) in the Australian market. And despite their relatively small share of market assets ($158.8 billion compared to $4,370 billion for the major banks), the contribution of customer-owned banks to people and communities is proportionately greater.
The report found customer-owned banks punch above their weight because they:
- Are considered the primary financial institution of more than 10 per cent of the adult population, and make up 5.6% of mortgage lending, well above their 3.5 per cent share of overall market assets,
- Provide unparalleled demand for skilled employees in regional locations, and
- Actively contribute in a disproportionate manner to sector-based and geographic communities through generous donations to charitable organisations and community sponsorships.
Minister for Regional Development, Local Government and Territories, and Member for Eden-Monaro, the Hon Kristy McBain MP, said the report recognises the strong investment of customer-owned banking institutions in regional Australia. “We’re seeing more branch closures in our regional communities, which has significant economic and wellbeing impacts on customers and restricts access to financial services,” Minister McBain said.
“But this report shows customer-owned banks are actively working with regional communities to enhance their services, and this investment is improving community cohesion and engagement, creating jobs and skills opportunities, boosting local economies, and ensuring that local businesses can access the services they need to operate.”
KPMG Australia Partner and Chief Economist, Dr Brendan Rynne, said customer owned banks occupy a unique position in Australian banking. “While collectively relatively small when measured by customer numbers, assets, total loans and revenue, Australia’s mutuals sector is large when measured by number of banks, branch footprint, and its presence in regional locations,” Dr Rynne said.
“Customer-owned ADIs are considered the primary financial institution by over 10 percent of the adult population and provide an unparalleled demand for skilled employees in regional Australia.”
COBA commissioned KPMG to measure the contribution of customer-owned banks to their local communities. Almost three-quarters of the customer-owned industry participated in the research, representing a broad spectrum of the industry.
“Credit unions, building societies, and mutual banks are well known for putting customers first and giving back to communities, however we wanted to go beyond anecdotal evidence to truly quantify the impact our members are making,” said COBA Chief Executive Officer, Mike Lawrence.
“These findings provide strong empirical evidence of the extent to which our members put people before profits. Our sector has a large and growing footprint in Australia, as customers realise the benefits of banking with purpose.”
Strong branch network support jobs
Despite the shift to digital banking, customer-owned banks have maintained a strong branch network and continue to hire more Australians to support their members.
With 720 branches throughout Australia, the sector operates 18 per cent of total bank branches and more than one in five branches in regional areas, compared to the sector holding 3.5 per cent of total bank assets. This represents a significant investment in in‑person banking services.
Employment in the sector grew by 4.4 per cent between FY2021 and FY2022, with 11,200 working at a customer-owned bank at the end of the most recent financial year and earning a combined $1.24 billion in wages, the report found.
By comparison, as the major banks have been under pressure to reduce costs, they grew employment at a slower rate of 2.4 per cent.
Due to the sector’s Australia-wide footprint, it is an unrivalled provider of highly skilled jobs in financial services in regional locations, with 52 per cent of staff working and living outside metropolitan cities.
Donations and volunteering
The analysis shows that customer-owned banks also contribute strongly to the communities in which they operate through generous donations and volunteering.
KPMG found the sector distributes around $6 per member per year to charitable organisations and community sponsorships. With a membership of around five million, this is equivalent to about $30 million injected directly into the community. This compares favourably for instance to the four major banks. Analysis suggests that their financial community contributions are circa $2 per customer on average.
At the same time, customer-owned banking staff are heavily engaged with local communities through paid volunteering, which is estimated to add up to around $13,000 per institution.
Model boosts service and pricing, supports everyday Australians in home ownership.
The report found that customer ownership translates into better service and pricing for customers, including an implicit significant lending rate subsidy to members. KPMG estimates this subsidy to equates to a 0.3 per cent discount to the market interest rate – or more than $1,500 in interest annually on a $500,000 mortgage.
The sector’s focus on helping members own the home they live in results in a mortgage lending market share of over 5.5 per cent, above-system growth, and a higher proportion of lending to owner-occupiers (77 per cent compared to 67 per cent for all ADIs) and first home buyers (20 per cent compared to 16.5 per cent for all ADIs).
Strong contribution to Australia’s economic growth
In addition, the report found the economic footprint of the sector is much greater than its direct economic contribution. KPMG estimates an unplanned closure of the sector would result in an economic impact that is three times the size of the direct loss in wages, profits and taxes.
Collectively, the sector contributes $2 billion to the country’s GDP, the report found, when considering wages, profits, and taxes – more than that of aquaculture, fishing, forestry, gas supply services, shipping or petroleum and coal product manufacturing.
However, when taking into account other factors such as non-wage expenditure and planned investments, KPMG estimates the economic impact is equal to $5.7 billion.
A copy of the full report is available to download here.
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The research was conducted prior to the mergers of Newcastle Permanent with Greater Bank, and Heritage Bank with People’s Choice Credit Union.