South West Credit Union “is currently in a sound financial position to deliver on its potential, but the operating environment for small to medium sized credit unions remains difficult,” the board of the credit union told members.
In an information document for a proposed merger with Beyond Bank Australia, SWCU said “actors such as record low interest rates, high costs, an increasing compliance burden and the rapid advancement of technology are all contributing to an increase in merger activity within the industry”.
A merged entity would have combined assets of more than A$7.8 billion, and an extended branch network with 45 branches, meaning “a merger with Beyond Bank will create a single member owned banking organisation with the resources to better position the combined entity to meet the challenges ahead,” SWCU directors said.
With net assets of $12 million, South West Credit is one of the 10 smallest credit unions by capital, and its return on assets of 0.19 per cent is low. Its cost to income ratio of 90 per cent is one of the highest in the sector.
“South West Credit is a relatively small financial institution and faces significant challenges in dealing with much stronger competitors, providing the technology solutions now being demanded by consumers, and the increasing burden of regulation and compliance,” the directors said.
“The Board believes that greater economies of scale are required to continue to offer market competitive interest rates and fees to offset expected profitability pressures arising from the current highly competitive, low interest rate, low growth environment.”