Three-way credit union merger gets the go-ahead
The Australian Prudential Regulation Authority yesterday gave its final approval for the three-way merger of three Victorian mutuals - Pulse Credit Union, Melbourne University Credit Union and La Trobe University Credit Union.
Members of the three credit unions met last week to consider the merger proposals. Pulse Credit Union's general manager, Kel Warham, said the vote in favour of merging topped over 95 per cent at all three meetings.
The merger will take effect on October 1, when all La Trobe's business will be transferred to Pulse and all Melbourne's business will also be transferred to Pulse.
The three institutions will have equal board representation.
The merged entity will have 9500 members and around A$80 million in assets. La Trobe has 2000 members, Melbourne has 2300 and Pulse (which is an amalgam of credit unions operating in the Victorian health industry) has 5200 members.
The information memoranda issued to members set out the usual reasons for merging: the rising cost of meeting tougher compliance requirements; the cost-effectiveness of a larger organisation; and the improvement in product and service delivery that a bigger institution can offer.
The review of operations in the latest La Trobe University Credit Union annual report paints a more revealing picture of the pressures facing small financial institutions.
It says: "The board is pleased to report that the level of financial performance of the credit union over the 2010/11 financial year has not been achieved since 2005/06. The result is considered a very satisfactory outcome in light of the current difficulties imposed by the regulator APRA in placing severe restrictions on the credit union's ability to accept large lending applications."
APRA rules classify a large loan exposure as one that represents more than five per cent of risk-weighted assets.
La Trobe has loan assets of $17 million. Based on its risk-weighted assets, a loan of less than $200,000 is classed as a large loan exposure. For the past few years, La Trobe has had the highest proportion of large loan exposures of any APRA-regulated financial institution.
La Trobe's general manager, Doug Andrews, said the credit union was required to consult with APRA before taking on exposures in excess of 10 per cent of risk-weighted assets.
Andrews said: "APRA worked closely with us and was very flexible. We have half a dozen loans in the range of 20 to 23 per cent of risk-weighted assets.
"They came and inspected our loan book and were happy with the credit quality.
"But, last year APRA said we could not take on any more large loan exposures. That meant we also had to discourage deposits if we did not want to end up with a very low return business.
"At that point we went into merger discussions."