Tuesday, 23 April 2013

Switching away from the banks

Many in Australia grew up saving with local credit unions, only to get wowed over by larger banks with greater product offerings, often tied to mortgage finance deals.  Since the start of the year the industry representative body has launched a campaign to raise the sector's profile, and its website ("Balance Banking" campaign) has some good details about the sector in general.

Interestingly, if the experience of the UK (which is currently a few years ahead of Australia in its banking crisis) is a guide then mutuals are likely to do well:

At a time when the payday lenders have been under media scrutiny for their astonishingly high interest rates (the Guardian recently reported the case of one lender charging more than 16,000,000% APR), the credit union way of providing financial services seems almost too good to be true. Loans are currently set at a maximum rate of interest of 2% per month (26.8% APR), for example. But despite more than 20 years of trying, Britain's credit union movement is still struggling to get attention. Compared with Australia, say, where a quarter of the population are credit union members, or the US where credit unions claim 95 million members, the British movement still has a long way to go (here).
And the Financial Times had some coverage of one mutual, the Weslayan Assurance Society:

The Birmingham-based mutual, which has focused on professionals market after merging with the Exeter-based Medical Sickness Society in 1997, has seen total turnover or premium income rise 133 per cent since 2005 from £166m to £387m. 
The growth has been driven by the trust the mutual has built up at a time when banks and other financial services companies have been under fire (here).
As it happens Schroders thinks Australian banks are overvalued:

The major banks have added $100 billion in market capitalization in the past year; we would be interested to see the logic behind an explanation as to how their sustainable earnings have increased at all, let alone by even close to the $10 billion required to justify this increase in market value through this time,” the firm’s deputy head of Australian equities Andrew Fleming said on Thursday....“In our view, the Australian economy is becoming more risky over time as the commodity boom fades, which suggests the banks are looking expensive,” Mr. Brunker told MoneyBeat. “No sector seems to have the potential to drive growth. (here)

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