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Australia’s mutual banks, building societies and credit unions (the ‘mutuals’) increased overall operating profit before tax by 38.6 percent to $685.0m in the 2021 financial year, with total assets up 7.4 percent to $148.2b. The renewed growth by the mutuals reflected Australia’s strong economy and housing market, and a reversal of the COVID-related loan loss provisions from 2020.

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.

Hessel Verbeek, KPMG ³Ô¹ÏÍøÕ¾ Sector Leader, Mutuals, commented: “The 2021 financial year was a test of resilience for business, communities and individuals, and the results of the mutuals 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.”

“The strong increase in the mutuals’ operating profit before tax was primarily due to lending growth achieved in 2021, along with the absence of the significant loan loss provisions that we saw in 2020. 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.”

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) as a result of provision writebacks.
• Capital levels decreased by 37 bps to 16.29 percent (2020: decreased by 31 bps).

The mutuals continue to maintain a positive outlook in the face of ongoing market and economic uncertainty, with 78 percent of survey respondents revealing they feel confident in their three year growth prospects, a notable increase from 63 percent in 2020. They identified their top three priorities for the next three years 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.

Hessel Verbeek added: “The mutuals in Australia have a great legacy as a collective but face a number of strategic and financial challenges including stiff competition, the rapid evolution of customer expectations, low interest margins, and high costs of operation and regulatory compliance. How you grow matters, and the mutuals are seeking to address these challenges head-on as they continue to evolve and leave a positive impact for their members and the wider society.”

“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.”

About KPMG’s Mutual industry review 2021

The survey examines the performance and trends of mutuals in Australia’s financial services industry for the 2021 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 articles by KPMG authors.