Report No. 2 May 2013 With the number of Mutual Banks Australiawide soon to reach ten, these customerowned institutions are becoming a force to reckon with. THE FEELING IS MUTUAL Mutual bank is a relatively new term in Australia. So what are they? In keeping with other mutual organisations, mutual banks provide the same consumer banking services as listed banks, including credit cards, personal loans, home loans, online savings accounts, internet and mobile banking and term deposits. The point of difference is that they are owned by their members. One member share equals one vote on mutual bank constitutional matters. Mutual profits are reinvested back into the mutual bank. On the Federal Government financial wish list is a fifth pillar of banking. Mutuals, encompassing banks, credit unions and building societies, collectively represent the fifth-largest retail deposit holder. Within this collective, mutual banks are becoming a force to be reckoned with. It is also worth noting that all Authorised Deposit-Taking Institutions (ADIs), which includes mutual banks, are regulated under the Banking Act. As such, mutual banks must meet the same high standards of prudential regulation as other banks. The Federal Government guarantee on deposits up to $250,000 also extends to deposits held with mutuals. WHY MUTUAL BANKS? While the needs of every customer are different, here are a few mutual benefits to consider. 1. Their customers tend to be happy. A recent Banking Satisfaction Survey, by Canstar Blue, found high levels of customer satisfaction across the mutual banks surveyed. Teachers Mutual Bank topped the list of all named institutions, with 90% of their existing customers describing themselves as happy. That compares to a general banking industry overall average of 67%. 2. Personalised service. Mutual banks tend to be smaller in size and, being customer-owned, have a customer centric focus. This enables them to more easily offer a personalized service that many of their members value. It also means that the goals of the customers, as owners, are the goals of the institution 3. Competitive rates across loans. Our analysis indicates that the average standard variable home loan rate of the mutuals has been consistently lower than the standard variable home loan rate of the major banks over the past two years. It should be noted, though, that this does not take into account discounts offered on the standard rate, either via a no frills, low-rate low loan or via a package. These discounts can be substantial. YOUR GUIDE TO PRODUCT EXCELLENCE
4. Competitive rates across savings. The mutual banks also offer competitive interest rates across their savings products. The chart on the following page compares the average rates offered by the mutuals and majors for 12 month term deposits and online saver accounts, at investment values of $50,000 and $25,000 respectively. 5. Your custom keeps the market diversified. The benefits of diversification in any market include increased competition and increased choice for consumers. Mutual banking overall across banks, credit unions and building societies has a collective size of $86.4 billion in assets. As a customer of a mutual bank, you are helping to keep diversification in the banking sector a real and viable thing. THE BEST OF THE BEST? For the second year, CANSTAR has assessed the eligible mutual banks to identify which offer the best value across a range of lending and deposit products. We looked at lending products (including home loans, credit cards and personal loans), deposit products (including both savings and transaction accounts) and institutional factors (including accessibility, online banking and other products) in making our decision. A copy of our methodology is attached to this report. The best of the best, despite some tough competiton, was Australia s first mutual bank: bankmecu. Bankmecu has, along with a wide range of popular and competitive products in each category, excellent internet banking and mobile banking platforms and good accessibility. As mentioned, bankmecu was Australia s first mutual bank, and has a strong heritage representing the amalgamation of fifty-six credit unions. They are based in Kew, Victoria, with 25 branches and wide ATM access around the country. CANSTAR congratulates bankmecu on winning the Best Value Australia award in the important area of Mutual Banks. YOUR GUIDE TO PRODUCT EXCELLENCE 2
WHO ARE THE OTHER PLAYERS? Listed alphabetically, the mutual banks currently operating in Australia are as follows: * With their transformation from Police Credit Union on 1 June 2013, BankVic is the newest mutual bank on the block. They are not a new institution though, having been established in 1974 and offering a wide range of financial services to specific sectors of the community. Defence Bank was established in March 1975 as Defence Force Credit Union Limited. Defence Bank has more than 90,000 members and solid asset growth. It has 44 branches and a range of CANSTAR 5 star-rated products. In 1981 Toowoomba Permanent Building Society and the Darling Downs Building Society merged to become Heritage Building Society. Based in Toowoomba, Queensland, the organisation renamed as Heritage Bank in late 2011. Heritage is the largest Mutual Bank and, in addition to its own outlets, has a network arrangement with Westpac to provide customers with greater ATM coverage. me Bank s original launch was in 1994. Called Super Members Home Loans, the focus of the institution was to provide simple, low-cost home loans to members of industry superannuation funds. Me Bank is unique in structure, being owned by a number of well-regarded industry superannuation funds and ultimately, via those funds, the superannuation members. Me Bank now provides a wide suite of banking products and services to the public. P&N was born in Western Australia in 1990 as Police & Nurses Credit Society, with approximately 15 West Australian credit unions now making up part of its history. Based in Perth, Western Australia, its name was officially changed in October 2012 to Police & Nurses Ltd. Based in Sydney NSW, Police Bank originally started life as Police Credit Union, in 1964. With branches throughout Sydney, as well as a branch each in Melbourne and Canberra, Police Bank have a good range of products and services and currently have around 75,000 members. QT Mutual Bank originated as Queensland Teachers Credit Union in 1965. After 46 years as Queensland Teachers Credit Union, in October 2011 it became Queensland s mutual bank and, based in Brisbane, currently has approximately $1.2 billion in assets. In keeping with its history, the Bank has stated that the education sector and young people in particular will always be seen as an important area for the organisation to support. Teachers Mutual Bank started life as the Hornsby Teachers Association Credit Union in1966, with 29 members and $644 in deposits. They now have over 155,000 members and $3 billion in assets. Based in NSW, it also has a branch in Weston, ACT and East Perth, WA. Victoria Teachers Limited, trading as Victoria Teachers Mutual Bank, began life as a credit union set up specifically to provide for the financial needs of those working in education. Based in Melbourne, Vic, the organisation is now open to all and provides a wide range of banking products and services. YOUR GUIDE TO PRODUCT EXCELLENCE 3
* Please note that BankVic was not considered for our Best Value Australia Mutual Bank award as they were still classed as a credit union at the time of assessment. The Australian Government's banking reform package was announced on 12 December 2010 and was aimed at: empowering consumers to get a better deal; positioning smaller lenders as safe and competitive alternatives to the big banks; and securing the long-term safety and sustainability of the financial system so it can continue to provide reasonably-priced credit to Australian households and small businesses. An aim of the government is to build a new pillar in the banking system by supporting the mutual sector. Part of that is simply educating consumers about the safety and competitiveness of mutual lenders and emphasising the similarities between banks, credit unions and building societies. Banks are seen by some members of the public as being safer than other mutual structures. Some mutual institutions have decided that, if they meet APRA's authorisation guidelines on the minimum capital requirements for use of the term 'bank', it makes sense to incorporate the word into their name. Australians can have absolute confidence in the safety of their money wherever their deposit is held. Some 4.5 million Australians are members of a mutual, but many others may not be aware of the critical role they play in putting competitive pressure on the big banks. Banking.treasury.gov.au COPYRIGHT CANSTAR Pty Ltd ABN 21 053 646 165, 2008. The recipient must not reproduce or transmit to third parties the whole or any part of this work, whether attributed to CANSTAR or not, unless with prior written permission from CANSTAR, which if provided, may be provided on conditions. DISCLAIMER To the extent that any CANSTAR data, ratings or commentary constitutes general advice, this advice has been prepared by CANSTAR Pty Ltd ABN 21 053 646 165 AFSL 312804 and does not take into account your individual investment objectives, financial circumstances or needs. Information provided does not constitute financial, taxation or other professional advice and should not be relied upon as such. CANSTAR recommends that, before you make any financial decision, you seek professional advice from a suitably qualified adviser. A Product Disclosure Statement relating to the product should also be obtained and considered before making any decision about whether to acquire the product. CANSTAR acknowledges that past performance is not a reliable indicator of future performance. Please refer to CANSTAR s FSG for more information at www.canstar.com.au YOUR GUIDE TO PRODUCT EXCELLENCE 4
METHODOLOGY CANSTAR star rating and award methodology is used for all components, apart from the institutional factors. The profiles within each star rating and award are provided with a weight towards the overall Best Value Mutual Bank award. An institution is represented by its product which has received the highest score/performed the best in each profile/category. 1.1 METHODOLOGY OVERALL Lending 50% Best Value Mutual Bank Deposits - 40% Institutional Factors 10% 1.2 METHODOLOGY LENDING Within the lending portion of the comparison we consider the three main areas of retail lending (1) Home Loans, (2) Credit Cards and (3) Personal Loans. Home Loans 65% (-5%) Lending Credit Cards - 15% Personal Loans 20% (+5%) YOUR GUIDE TO PRODUCT EXCELLENCE
1.2.1 METHODOLOGY HOME LOANS The home loan portion of the lending category is calculated using the profiles from CANSTAR Home Loan star ratings. Variable 70% Owner Occupied Home Loan 80% 1 Year Fixed 7.5% 2 Year Fixed 7.5% 3 Year Fixed 10% $250k 50% $500k 50% Line of Credit 5% Home Loans Variable 70% Investment Home Loan - 20% 1 Year Fixed 7.5% 2 Year Fixed 7.5% 3 Year Fixed 10% $250k 50% $500k 50% Line of Credit 5% 1.2.2 METHODOLOGY CREDIT CARDS The credit card portion of the lending category is calculated using the profiles from CANSTAR Credit Card star ratings. Habitual Spender 30% Credit Cards Occasional Spender - 15% Everyday Spender 30% Big Spender - 25% 1.2.3 METHODOLOGY PERSONAL LOANS The personal loan portion of the lending category is calculated using the profiles from CANSTAR Personal Loan star ratings. Unsecured Personal Loan 50% Personal Loans Car Loan - 50% YOUR GUIDE TO PRODUCT EXCELLENCE 2
1.3 METHOLOGY DEPOSITS Within the deposit portion of the comparison we consider the two main areas of retail deposits (1) Savings Accounts and (2) Transaction Accounts. Deposits Savings Accounts 75% Transaction Account - 25% 1.3.1 METHODOLOGY SAVINGS ACCOUNT The savings account portion of the deposit category is calculated using the profiles from CANSTAR deposit star ratings and term deposit award. Term Deposits 50% Savings Accounts 75% At-Call Accounts 50% Bonus Saver 10% Online Saver - 60% Junior Saver 10% Cash Manager 20% 1.3.2 METHODOLOGY TRANSACTION ACCOUNT The transaction account portion of the deposit category is calculated using the profiles from CANSTAR deposit star ratings. Low Transactor Full Service 20% Transaction Accounts 25% High Transactor Full Service 20% Electronic Transactor - 60% YOUR GUIDE TO PRODUCT EXCELLENCE 3
1.4 METHOLOGY INSTITUTIONAL FACTORS The institutional factors component of the award takes into account the institutions accessibility i.e. number of branches, online banking functionality and availability of other products not considered in the deposit and lending categories. Accessibility 15% Institutional Factors Online Banking 80% Other Products and Services - 5% How often are banking products reviewed for award purposes? All ratings are fully recalulated every twelve months, based on the latest features offered by each institution. CANSTAR also monitors changes on an ongoing basis. The CANSTAR Best Value Mutual Bank award will be decided once a year. Does CANSTAR rate other product areas? CANSTAR researches, compares and rates the suite of banking and insurance products listed below. These star ratings use similar methodologies to guarantee quality, consistency and transparency. Results are freely available to consumers who use the star ratings as a guide to product excellence. The use of similar star ratings logos also builds consumer recognition of quality products across all categories. Please access the CANSTAR website at www.canstar.com.au if you would like to view the latest star ratings reports of interest. Account based pensions Agribusiness Business banking Business life insurance Car insurance Credit cards Deposit accounts Direct life insurance Health insurance Home & Contents Home loans Life Insurance Managed investments Margin lending Online share trading Package banking Personal loans Reward programs Superannuation Travel insurance COPYRIGHT CANSTAR Pty Limited ABN 21 053 646 165, 2008. The recipient must not reproduce or transmit to third parties the whole or any part of this work, whether attributed to CANSTAR or not, unless with prior written permission from CANSTAR, which if provided, may be provided on conditions. DISCLAIMER To the extent that any CANSTAR data, ratings or commentary constitutes general advice, this advice has been prepared by CANSTAR Pty Limited ABN 21 053 646 165 AFSL 312804 and does not take into account your individual investment objectives, financial circumstances or needs. Information provided does not constitute financial, taxation or other professional advice and should not be relied upon as such. CANSTAR recommends that, before you make any financial decision, you seek professional advice from a suitably qualified adviser. A Product Disclosure Statement relating to the product should also be obtained and considered before making any decision about whether to acquire the product. CANSTAR acknowledges that past performance is not a reliable indicator of future performance. Please refer to CANSTAR s FSG for more information at www.canstar.com.au. YOUR GUIDE TO PRODUCT EXCELLENCE 4