Mutuals’ assets up but profits fall in 2022

Oksana Patron

28 November 2022

Australia’s mutual banks, buildings societies and credit unions increased net assets by 7.8% to $11.2 billion in the 2022 financial year, but their overall operating profit before tax declined by 11.1% to $604.7 million from $680.5 million a year before.

According to KPMG mutuals Industry Review 2022, this was primarily due to a decrease in net interest margins and a slight increase in cost-to-income ratios.

Additionally, mutuals faced deteriorating economic conditions and rising interest rates, while many of them remained exposed to significant climate-related weather events, such as floods.

Darren Ball, KPMG National Sector Leader, Mutuals, said that the second half of the financial year in particular saw an arrest in the long-running slide in net interest margins, as lending rates increased more than deposit rates, and on top of it, there was a nationwide decrease in house prices and a more restricted willingness and ability by customers to borrow to own or invest in homes.

“There are several factors affecting mutuals’ performance. Continued economic growth, in combination with a range of supply-side constraints, has resulted in a spike in inflation. The series of interest rate increases by the Reserve Bank of Australia (RBA) is affecting the Mutuals and their members in several ways,” he added.

The study found that key challenges facing mutuals in 2023 would include the end of a long period of low interest rates in the final quarter of the 2022 financial year which had various major impacts on the residential lending market that the mutuals focused on and that the balance of these impacts might point to a slowdown in mortgage lending performance.

Also, the requirements for the mutuals to invest would continue to increase, putting additional pressure on their capital base and the need to generate profits.

The other challenges would be talent scarcity, given that over half of all mutuals’ staff lived and worked outside of the metropolitan areas, and potential consolidation as mutuals were looking to grow through mergers due to the limitations of operating medium- and small-scale banks remaining in place.

However, despite these headwinds, the sector outlook remained positive in the face of ongoing market and economic uncertainty, with 75% of respondents to the KPMG Mutual Industry Review survey revealing they feel confident in their three-year growth prospects (compared to 77% in 2021).

“The success of the mutuals in seizing the opportunities and dealing with the challenges will determine how they continue to make an impact through the delivery of member value and community contributions. A proactive and responsive Mutuals sector will be able to build on its positioning as purpose-driven organisations, to continue to find new ways of serving their members and their communities,” Ball said.