CUBS positioned to avoid margin pressure

John Phillips
Speaking at a panel yesterday Paul Lahiff, chief executive officer Mortgage Choice, said "the answer is yes", when asked if, given the fact that some building societies and credit unions traditionally have a very strong retail deposit base, they are well placed to resist some of the upward margin pressure on mortgage rates.

 "I think unfortunately a number of what we call traditional retail financial institutions forgot about their retail deposit base as it was easier and simpler to just go into the securitisation markets and that very small number of very large depositors with that sticky money tended to be ignored.

"A lot of those institutions have realised that those deposits are pretty valuable.

"So if there are those mutual organisations that don't have to pay dividends to shareholders because of their mutuality, and they do have a strong traditional retail deposit base, they are going to be in a pretty good position to compete.

"But not all of them, as some did get addicted to their securitisation fix, but a good number of them still have that very sticky money which then can be on lent to people wanting housing loans."

John Symond, chairman of Aussie, agrees with Lahiff, "but there are a lot of credit unions out there who are very small, don't have a big deposit base, rely on securitisation and there are a number of them on the market for sale.

"So what we hope is that we don't have a scare in the banking circles where consumers start worrying about is it safe to put my money with anyone other than the big banks, so there is some uncertainty there.

"But certainly there are some tremendous credit unions out there as there are small building societies, but so long as confidence isn't dented in the consumers' eyes, that will be OK."

Lahiff earlier mentioned that, "I won't say that there has been a flight to quality (in recent mortgage movements), but I think there has been a flight to brand, which means that there are a broad number of institutions that are getting more business at the expense of some of the smaller lenders, and it's not just the big four banks, but includes some of the regional banks."

Louise Petschler, CEO of Abacus, the industry group for credit unions and mutual building societies, said that mutuals are well placed to compete for mortgage market share in the current environment.

"Eighty per cent of our funding is drawn from household deposits, and our use of securitisation is more about capital management strategies.

"Mutual building societies and credit unions together are the second largest gatherer of household deposits after the Commonwealth Bank, and this is a very good position for us in the current market.

 "The RBA in its recent Monetary Policy Statement showed that in January credit union and building society home loan rates were 18 basis points lower than the big banks."

The panel was held at the second Annual Global Mortgage Conference hosted by the Australian Banking & Finance Magazine in Sydney.