Mike Lawrence

The Customer Owned Banking Association (COBA) welcomes the Regulatory Initiatives Grid pilot but emphasises the need for regulator coordination to ensure it delivers on its promise of easing the regulatory burden for small and medium-sized banks.

“The Government’s Regulatory Initiatives Grid is a positive step towards greater transparency, but it needs to be more than just a window into upcoming changes. To truly benefit customer-owned banks and promote a diverse banking landscape, the Grid must improve regulator coordination and sequencing of reforms,” COBA CEO Michael Lawrence said.

As acknowledged in the recently released Council of Financial Regulators’ Review into Smaller and Medium-sized Banks issues paper^[1], there has been an increase in banking regulation over the past decade which has brought with it a surge in costs related to capital, reporting, and compliance.

“All financial institutions have been impacted by the cumulative weight of regulatory change. However, this impact has been magnified for customer-owned banks as they are smaller in size and face disproportionate challenges in navigating a fragmented and uncoordinated regulatory landscape,” Lawrence said.

Regulator coordination would mean that major reforms would be better spaced out by the agencies, preventing them from occurring at the same time. This would help customer-owned banks better plan, prepare, and allocate resources for future implementations

“Ultimately, a coordinated approach to regulation would empower customer-owned banks to compete more effectively, leading to a more dynamic and diverse banking landscape,” he added.

COBA recognises that the Regulatory Initiatives Grid has been initially developed as a pilot and will be improved over time, and believes industry should be consulted and involved in the development of Grid updates.

“A collaborative approach to the Regulatory Initiatives Grid will ensure it evolves into a robust tool that truly supports a diverse and competitive banking sector. This will not only benefit customer-owned banks but also strengthen the Australian financial landscape, leading to better outcomes for consumers and the economy,” Lawrence said.

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Notes:
[1] https://www.cfr.gov.au/publications/consultations/2024/review-into-small-and-medium-sized-banks/review-into-small-and-medium-sized-banks.html

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Mike Lawrence

The Customer Owned Banking Association (COBA) and its member banks welcome the findings of the Better Competition, Better Prices report from the House of Representatives Standing Committee on Economics following its inquiry into promoting economic dynamism, competition, and business formation.

As part of its investigation into the concentration of capital and economic power in banking, the Committee found the obligations of regulatory compliance adversely impacts customer-owned banks, ultimately threatening competition in the banking sector^[1].

COBA CEO Michael Lawrence said: “The customer-owned sector is essential to keeping Australian banking competitive, and ensuring customers have options when it comes to service and products. We welcome the findings which acknowledge that the regulatory burden is a disproportionate threat to customer-owned banks.”

For example, BankWAW – a credit union based in North East Victoria and Southern New South Wales – told the Committee that 80 per cent of new roles in its business of 90 people were related to supporting risk and regulatory frameworks.

“It can be challenging for smaller banks to efficiently resource constantly changing regulatory standards. Proportionate regulation allows smaller banks to invest in improvements for customers and provide much-needed competition in the banking market,” Michael Lawrence said.

The Committee noted that greater competition in the banking sector would ‘benefit consumers through more innovative and competitive products and enhanced economic dynamism^[2].’

In total, COBA and nine members appeared in front of the inquiry.

“We thank the Committee and in particular Chair of the Committee Dr Daniel Mulino MP and Deputy Chair Garth Hamilton MP for their work on the report. We are grateful for the time they took to listen to our members, and for emphasising the importance of healthy and strong competition in banking as it ultimately benefits all Australians,” Michael Lawrence said.

The Committee made 44 recommendations in the report, including supporting the introduction of a Regulatory Grid. The Government announced earlier this month it will be introducing a Regulatory Grid, which will create benefits across the whole financial services sector including greater transparency and the ability to better plan and allocate resources. COBA has relentlessly advocated for the Regulatory Grid since 2021.

Australian customer-owned banks, including building societies, mutual banks and credit unions have been delivering financial services centred on people and communities for almost 180 years.

“COBA will continue to advocate for more recognition of the customer-owned banking sector overall, and the diversity of banking business models. We look forward to further discussions and collaboration with parliamentarians and regulators to ensure the sector can thrive in driving competition and providing strong, innovative banking solutions for consumers in Australia,” Michael Lawrence said.

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Notes:
[1] 6.102 in report: However, the Committee is troubled by the significant difference in profitability between the major banks and the smaller banks. Scale and diversification clearly confer significant advantages but the Committee also recognises the potential for major banks to leverage this scale to squeeze out competitors to the detriment of consumers, especially in the area of residential mortgages, and businesses. For smaller and customer-owned banks, the obligations of regulatory compliance could force them to direct resources away from areas of natural competitive advantage, such as customer service, innovation, and attractive product pricing. This situation does not reflect well on competition in Australia’s banking sector.
[2] 6.10 in report: Hearing the perspective of customer-owned and non-major banks was important, because they are disproportionately affected by the compliance burden of regulation. The Committee heard that a regulatory roadmap could improve the ability of smaller entities to compete. This greater competition would, in the view of many witnesses, by extension benefit consumers through more innovative and competitive products and enhanced economic dynamism.

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Mike Lawrence

The Customer Owned Banking Association’s (COBA) submission to the Senate inquiry into regional banking branch closures highlights the sector’s commitment to regional Australia, and outlines what it considers the best way forward for regional banking.

Michael Lawrence, CEO of COBA, said customer-owned banks are extremely conscious of the importance of regional banking services, with more than half of the sector staffed and headquartered outside of major cities.

“Our members continue to innovate to keep regional branch services open, including co-owning community branches, co-locating with government services, using branches to supplement call centres, and adjusting opening hours to better align with customer behaviour,” Mr Lawrence said.

“Our sector operates the largest regional branch network in Australia with 21 per cent of all regional branches, despite a 3.5 per cent overall asset share. This translates to more than four branches per billion dollars in assets, compared to 0.6 branches per billion for the majors.”

Analysis of the June 2022 APRA Points of Presence data has also shown that the sector reduced its regional branch footprint at a much slower rate of 1.7 per cent, compared to 5.5 per cent for the total regional network, in the 2021-2022 financial year.

During the Queensland public hearings held in Cloncurry and Ingham^[1]over the past 2 days, the inquiry has heard from customer-owned banks who gave evidence on their innovative approaches to providing financial services in regional Australia, while also highlighting the real challenges facing branch networks.

As part of the submission made on behalf of its 56 members, COBA has called for improved banking regulatory coordination to lessen the burden on smaller banks, and the recognition of mutual banking in regulator mandates to ensure regional banking services remain competitive.

“To reduce the impact of regulatory change on smaller banks, and free up resources to invest in customer-focused initiatives, a new regulatory coordination mechanism should be introduced that outlines changes across multiple financial services regulators, similar to the United Kingdom’s Regulatory Initiatives Grid,” Mr Lawrence said.

“We are also calling for the recognition of our customer-owned banking sector in regulator mandates to ensure Australia does not end up with a regulatory environment that assumes the default of an investor-owned business model in policy and decision-making. Instead, promoting a diversity of business models in financial services would drive competitive services for regional Australians, and provide a broader range of innovative solutions to better serve customers.”

COBA opposes two policy solutions currently being canvassed by some stakeholders – a government-owned bank, and a community service obligation – considering them anti-competitive interventions detrimental to the sector’s ability to provide services for regional communities.

“There are calls for Australia Post to obtain an ADI license to compete in the banking market. COBA does not support this on the grounds it will fundamentally disrupt the competitive banking landscape in Australia and lead to worse outcomes for the sector, particularly smaller institutions,” Mr Lawrence said.

“Similarly, any moves to impose regulatory obligations on the last bank branch in town, of which many COBA members already are, could lead to the acceleration of branch closures as banks look to avoid being the last one standing – which is exactly what we don’t want.”

Read the submission. 

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Notes:
[1] https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Rural_and_Regional_Affairs_and_Transport/BankClosures/Public_Hearings

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In the report, building societies (94%) and credit unions (90.9%) saw an increase of customer satisfaction by those who used them as their main financial institution over the past six months, while the major banks (77.4%) saw growing dissatisfaction with their services. The mutual sector overall held 91.6 per cent in customer satisfaction as of June 2022.

The customer-owned banks with the most satisfied main financial institution customers include Teachers Mutual Bank (98%), Heritage Bank (94.8%), Beyond Bank Australia (92.9%), and Greater Bank (91.4%).

COBA’s Chief Executive Officer, Michael Lawrence, said the satisfaction of mutual banking customers comes down to community commitment, competitive rates, and personalised service.

“Enshrined within the DNA of customer-owned banks is the commitment to give back to the communities they serve, putting people before profits and having customers at their core,” he said.

“These results show that customer-owned banks are well ahead of the pack when it comes to customer satisfaction. They deliver leading products, competitive rates, and services with a personal touch – this is why the significant majority of more than five million Australians who bank with a member-owned institution are beyond happy with their choice.

“The customer-owned model is also unique because our members are part of the fabric of local communities across the country, many rural and regional based, and they continue to support these communities through grants to local charities, sporting clubs, and community organisations.”

COBA members also took out top spots in recent finance and banking awards, reinforcing the sector as a smart alternative for Australians looking for options outside the major banks – Bank First was named Bank of the Year in the most recent Roy Morgan Annual Customer Satisfaction Awards and Canstar’s 2022 Awards named IMB as the most customer-satisfied bank.

This builds on strong independent recognition of customer-owned banking excellence with Forbes recently naming COBA members as the top four banks in Australia. Its list of World Best Banks featured Beyond Bank leading the pack, followed by Heritage Bank, Greater Bank, and Newcastle Permanent Building Society.

“The past six months has seen some big changes in the banking sector, and to see our COBA members so strongly serve their member base demonstrates the value these institutions have beyond dollar figures and rates.”

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Michael Lawrence

Legislation to allow Australia’s customer owned banking sector to more easily raise capital will increase its ability to compete with the nation’s major banks.

“We welcome the Government’s draft bill, issued for consultation by the Assistant Minister for Treasury and Finance Zed Seselja, to implement these changes and we look forward to continued strong bipartisan support for the customer owned model,” said COBA CEO Michael Lawrence.

“As Treasurer, Prime Minister Scott Morrison championed this reform agenda with the strong backing of the bipartisan Parliamentary Friends of Cooperatives and Mutuals Group co-chaired by Nationals Deputy Leader Bridget McKenzie and Shadow Assistant Treasurer Andrew Leigh,” Mr Lawrence said.

“This is an important reform that will ensure our sector has greater access to capital, which is critical to our capacity to grow.

“This legislative overhaul is a fundamental endorsement of the customer owned model and it will help boost competition in the banking sector and provide greater choice for consumers,” he said.

Mr Lawrence said the changes to the Corporations Act will, for the first time, positively define the core elements of a mutual company and amend flawed demutualisation provisions.

“These historic legislative reforms will provide greater access to regulatory capital and help ensure our members can grow more quickly and undertake important investments, while remaining well capitalised.

“With an enhanced capacity to write more loans and provide better quality services to current and prospective members, our sector will be able to apply more competitive pressure in the banking market,” Mr Lawrence said.

COBA has worked closely with the Business Council of Cooperatives and Mutuals to secure these reforms. COBA is the industry body for mutual banks, credit unions and building societies. With four million customers, total assets of $113 billion and 71 member institutions, the customer owned sector together holds the largest pool of household deposits and the largest housing book outside the big four banks.

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“We welcome this draft bill to amend the Corporations Act to increase our sector’s capacity to expand and take opportunities while staying true to our customer owned model,” said COBA CEO Michael Lawrence.

“This legislation will for the first time positively define the core elements of a mutual company in the Corporations Act.

“This is a historic reform and a welcome endorsement of the customer owned model.

“We congratulate the Government for backing our model and, subject to consideration of the draft bill, we look forward to bipartisan support for implementing legislative change.

“Customer owned businesses are particularly well placed to deliver competition and choice in banking because we naturally put the customer first. We are profit-making but not profit-maximising. We are not trying to squeeze our customers to please shareholders. We are not perfect but we are not conflicted about who we are working for.

“Currently, mutual companies are not explicitly defined in the Corporations Act and the Corporations Act does not distinguish between mutuals and non-mutuals, except for the demutualisation provisions in Part 5 of Schedule 4 of the Corporations Act.

“These demutualisation provisions are to be retained for actual demutualisation proposals but are to be amended to make sure they don’t capture capital-raising proposals that do not change a company’s mutual identity,” Lawrence said. Today’s announcement is the latest step in a process flowing from the 2016 Senate Mutuals Inquiry, the March 2017 Hammond Report on reforms for mutuals and the Government’s 8 November 2017 policy announcement Backing co-ops, mutuals and customer owned banks to increase competition, and APRA’s 30 November 2017 Changes to the capital framework for mutual ADIs.

“We will now consult with our members and other stakeholders on the draft bill and we look forward to seeing the legislation finalised and introduced into Parliament as soon as possible,” Lawrence said.

“Access to capital, particularly regulatory capital, is critical to our sector’s capacity to compete and grow.

“Customer owned banking institutions have traditionally relied on retained earnings for their regulatory capital, supplemented to a limited degree by the issuance of capital instruments. Greater access to regulatory capital means that customer-owned banking institutions are able to grow more quickly and undertake important investments, while

remaining well capitalised. This allows our sector to write more loans and provide better quality services to current and prospective members. This will increase competition in the banking sector.”

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Michael Lawrence

APRA’s quarterly banking figures indicate that customers have faith in the customer-owned banking sector.

“Given the damage to the reputation of the broader banking sector due to misconduct exposed by the Financial Services Royal Commission, customers are looking for banking institutions they can trust,” said COBA CEO Michael Lawrence.

“APRA’s latest numbers show that customer owned banking institutions outpaced the major banks and the broader banking sector in growth in housing loans and deposits on both an annual and quarterly basis.

“This shows that customers want an alternative that puts them first.

“That is what our customer-owned model seeks to live up to every day in our mutual banks, credit unions and building societies,” Lawrence said.

APRA’s June 2018 quarterly ADI Performance Statistics also show that:

•  total assets in the customer owned banking sector have surpassed $113 billion
• the sector’s total housing loans reached nearly $85 billion – collectively the fifth largest housing book in Australia
• the sector’s total deposits reached nearly $97 billion – collectively the fifth largest deposits pool in Australia, and
• the sector made pre-tax profit of $677 million in 2017-18 and paid $199 million in company tax.

“Our sector’s net profit after tax of $479 million is put back to work for our customers by underpinning the sector’s strength and future growth,” Lawrence said.

“We are profit-making but not profit-maximising. We are not trying to squeeze our customers to please shareholders. We are not perfect but we are not conflicted about who we are working for.

“The need for genuine customer choice in banking has never been more important, with the House of Representatives Economics Committee this month finding that:

• trust in Australia’s financial sector has been eroded by a corporate culture in some institutions that places profit before customers and sales before service
• the reputation of Australia’s banking and financial system has been damaged by shocking examples of misconduct, in particular by the four major banks and AMP, and
• evidence provided to the Royal Commission has exposed parts of the financial sector as having a corporate culture motivated by greed and lacking in moral leadership.”

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