Australia’s mutual banks, building societies and credit unions (the “Mutuals”) have seen an 11.1 per cent drop in operating profits before tax to $604.7 million (2021: $680.5 million), according to the KPMG Mutual Industry Review 2022.
KPMG primarily attributed the $75.8 million decrease to a fall in net interest margins and a slight increase in the cost-to-income ratio.
2022 observed a decrease in net interest margins of 6 basis points (bps) to 1.93 per cent and an increase in the cost-to-income ratio of 48 bps to 80.3 per cent, both of which impacted operating profits.
Despite the year’s economic conditions, the Mutuals saw a 7.5 per cent increase in net assets — $158.8 billion compared to $147.7 billion in 2021.
Darren Ball, KPMG National Sector Leader, Mutuals, said: “The series of interest rate increases by the Reserve Bank of Australia (RBA) is affecting the Mutuals and their members in several ways.
“The second half of the financial year, in particular, has seen an arrest in the long-running slide in net interest margins, as lending rates have increased more than deposit rates.”
KPMG acknowledged that the 2022 financial year was impacted by other significant challenges, following on from two volatile years in 2020 and 2021.
In addition to Mutuals facing deteriorating economic conditions and rising interest rates, the review credited some of this disruptive year to significant climate-related weather exposure, especially floods.
According to Mr Ball, it’s critical that the Mutuals “respond to regulatory requirements” and “manage the substantial climate risks in their lending books proactively, as extreme weather events become the ‘new normal’ in Australia.”
“The floods in many parts of Australia at the same time have provided a stark reminder of the exposure of many Mutuals to local weather events, especially for smaller lenders with a geographically concentrated membership. It reinforces the need to understand and manage future climate risks within their loan book,” he explained.
Moreover, lending and deposits were both areas of growth for the mutuals sector, with increases of 8.1 per cent (2022: $120.9 billion and 2021: $111.9billion ) and 7.0 per cent (2022: $124.9 billion and 2021: $116.7 billion) respectively.
Despite the volatility of the 2022 financial year, Mr Ball believes that Mutuals are still punching “well above their weight”.
In the face of ongoing economic uncertainty, the outlook for the mutuals sector remains positive with 75 per cent of respondents to the review survey admitting they feel confident in their three-year growth prospects, compared to 77 per cent 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,” Mr Ball concluded.
