A high-minded, high cost approach to building – and differentiating – a mutual bank is not yet a sure formula for prosperity at Bank Australia.
The Melbourne-based mutual reported growth in assets of 17 per cent over the year to June 2022, and growth in deposits of 12 per cent – once more placing the bank near the top of table for system growth multiples.
Over recent years Bank Australia has pulled off one of the great rebranding and repositioning campaigns in the industry, via its marketing pitched to the environmentally and socially conscious.
This push has lifted its ranking as the “most trusted bank” in Australia to number four (based on Roy Morgan Research) – with the aspiration to making it to number one.
Via this endeavour (supported by a A$9 million annual marketing spend) Bank Australia may be the best known customer owned bank in the country. Its concentration in its Victorian home base has fallen below 59 per cent of all members, with the ratio in all other states well up over recent years.
The bottom line, however, is that over FY2022 the bank’s costs ballooned and thus net profit fell to A$34.4 million from $40.7 million in 2021.
There were “increases in operating costs to support the demands of our growing business” in the anodyne phrase of the annual financial report.
These costs jumped to $123 million from $100 million over a year, thanks to “increased investment in recruitment and employee experience, wellbeing and development initiatives”.
Staff numbers, on an FTE basis, climbed by 70 to 487.
“Additionally, we increased our investment in major technology projects such as loan origination and customer relationship system upgrades. This is part of our multi-year program to uplift both customer and employee experience,” the report said.
Thus, after an atypical outcome in 2021, the cost to income ratio jumped to 70.1 per cent in 2022, up from 63.5 per cent the year before.
Return on equity in 2022 fell to 5.4 per cent from 6.8 per cent, while return on assets fell to 0.4 per cent from 0.5 per cent, both mid-range ratios for the mutual ADI sector.
The bank closed one urban and two regional branches over the year, but found the budget to “employ more people in customer service roles in our contact centre and lending hubs to support customers”, funding guided by a slide in service standards and a rise in customer complaints.
The head office shifted from Kew to Collingwood.
The five-year overview in the report highlights the former bankmecu’s breakout.
Since 2018, total assets for Bank Australia have near enough doubled to $9.7 billion, compared with industry-wide asset growth over this period in the order of 25 per cent.
On the other hand, the rationing of its advertising spend during the year (in response, partly, to Covid lockdowns) meant customer growth metrics dipped. More than 21,000 new customers joined Bank Australia in 2022, and the bank grew its customer base by 5 per cent, with the total variously put at around 184,000 customers and 226,000 customers.
“Impact” and “responsible banking” are the bywords that sum up the bank’s purpose and points of difference. The bank even has a ‘chief impact officer’, Sasha Courville (formerly with NAB), with her remit spanning strategy, marketing and corporate affairs.
“Our impact finance business continued to grow with our portfolio of impact assets reaching $1.4 billion, up from $1.1 billion in 2021,” the bank informed members. ??
Impact finance assets now represent 14.5 per cent of the bank’s assets, an increase of 1.7 percentage points from the prior year, “and sees us progressing well towards our 2025 goal of 20 per cent”.
The bank defines impact finance as loans for purposes such as disability accommodation, community housing, sustainable development and not-for-profits. On the liability side, the bank says it “focuses on investments that are consistent with our values wherever we can, and we are an investor in green, social and sustainability bonds in Australia”.
“The headline commitment of our strategy is a target to achieve net zero emissions across our operations, and lending and investment portfolios by 2035,” the bank bragged in its 2022 Impact Report (note that the bland label ‘annual report’ is too dowdy for this disruptor).
“This is the most ambitious net zero target of any bank in the country and makes Bank Australia one of the most ambitious banks in this area globally,” or so they said.
Credit quality was as fair as might be expected as Bank Australia (and the industry) meander from a post-pandemic world via high inflation and a housing price crash to a recession. The bad debt charge in 2022 was $200,000, half the level in 2021, while 30-day arrears were 0.18 per cent at June, down from 0.34 per cent. Non-performing loans lifted by roughly half to $20 million. The bank made a minor increase in the collective provision.
Total members’ funds (or net assets) jumped to $667 million at June, the fourth-highest in the mutual banking industry. The bank is also the fourth-largest mutual bank by assets, though less than half the size of the two sector leaders.
Finally, it’s interesting to reflect on the value – per member – in the (exceedingly) unlikely event the board of Bank Australia were to debate the pros and cons of a demutualisation (a rare, and always controversial, event).
Easily in order of $6000 per member, and it costs essentially nothing to become a member.
- The author is a member of Bank Australia