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Chapter 8- Credit Unions, Building Societies and Community Banks
In withdrawing from some country towns or downgrading their level or
quality of service, the major banks have opened up the opportunity for other
financial service providers to fill a void. Credit unions, building societies,
and community banks are increasingly presented with the chance to provide
banking services where banks have departed from a locality or where such
services did not previously exist. This chapter looks at the potential for these
various institutions to step forward and take the place of the major banks in
offering over-the-counter banking services in country Australia. It considers:
- the new regulatory regime incorporating credit unions and
building societies under the one framework for ADIs;
- credit unions—their tradition, membership, range of services and
the barriers they experience in entering new markets;
- building societies—their history, membership and the constraints
they have in endeavouring to expand their services into country Australia;
- community banks—their potential to fill the vacuum left by the
major banks, the contribution they are currently making to regional banking,
and the problems they experience in establishing a presence.
A new regulatory regime for ADIs
On 1 July 1999, regulatory responsibility for credit unions and building
societies was transferred from the states and territories to the Commonwealth.
This move brought the regulation of credit unions and building societies as
non-bank authorised deposit-taking institutions into line with the banks. It
was envisaged that this new regime would be less cumbersome and would enable
the non-bank deposit-taking sector to provide a more effective source of
competition for the banks in the retail market. Now, under Commonwealth
jurisdiction, credit unions and building societies are ADIs licensed by the
Australian Prudential Regulation Authority (APRA) under the Banking Act
1959. They operate under the same rules as banks and are prudentially
regulated by APRA and regulated as companies by the Australian Securities and
Investments Commission (ASIC).
A major step toward the implementation of a uniform regime for ADIs took
place on 20 September 2000 when APRA issued a set of harmonised prudential
standards for authorised deposit-taking institutions. According to Mr Jeffrey
Carmichael, APRA, these standards brought the regulatory framework for banks,
building societies and credit unions ‘into full alignment for the first time’.
In a sense it marked the coming of age of the smaller
institutions, from a fragmented and inadequate regulatory system in the 1980s,
through the harmonised state-based FI scheme in the 1990s, to full regulatory
parity with banks in 2000.
Although credit unions and building societies are presented with the
opportunity to move into areas abandoned by the banks, they face the same
competitive forces that influenced the banks’ decision to withdraw their
over-the-counter services in regional Australia.
8.5 As with banks, these institutions must balance the commercial interests
of their shareholders, the demands of their customers and the needs of the
community. Although credit unions, building societies and community banks are
involved in the community, and have a closer relationship with their
shareholders, in the cases of credit unions and building societies they are
also the members, their success depends ultimately on their economic viability.
In 2001, APRA noted that over the previous five or so years, credit
unions and building societies had faced mounting pressure to expand their
operations so as to achieve economies of scale and to compete in an
increasingly technology-driven market. According to APRA, this situation
resulted in a steady process of consolidation, industry exit, and in the case
of building societies, some conversion to bank status. By 2001, the number of
credit unions had declined by 28 per cent since June 1995 (from 291 to 209),
and the number of building societies had declined by 36 per cent over the same
period (from 28 to 18).
The number of credit unions stood at 196 as at June 2001 while building
societies stood at 16.
APRA explained, however, that despite the decline in the number of
institutions, both the credit union and the building society sectors continued
to show asset growth which, it asserted, ‘reflects the fact that most of the
decline in the number of institutions has been due to consolidation (eg
mergers) rather than pure exits from the industry’.
Of interest to the Committee is the number of branches operated by these
institutions. In June 2001, Credit Union branches stood at 1028 but had dropped
to 939 by June 2003. Over the same period branches belonging to building
societies had fallen from 328 to 308.
The following table shows the distribution of credit unions and building
society branches and other face-to-face service channels in 2001, 2002 and
Table 8.1—Credit Unions and Building
Societies—Level of Service, 2001, 2002 and 2003
Points of Presence Category Comparing 2001 and 2002
Branch level of service
Credit unions are mutual organisations and as such hold the interests of
their members paramount. They are not-for-profit, democratic, member-owned
financial institutions whose services are directed to improve the economic and
social well-being of all their members who are also their customers.
On joining a credit union, a member pays a nominal amount which entitles him or
her to an equal say in the running of the organisation. Credit unions focus on
delivering benefits to members who share a common set of values and ethics
which governs the organisation’s operation.
Although small compared to the traditional banking sector, the credit
union sector is characterised by ‘diversity, with large credit unions operating
on a national scale and smaller locally-based ones serving targeted
CUSCAL informed the Committee that credit unions offer an extensive range of
banking and financial services to members, including face-to-face services,
internet and telephone banking, ATM and EFTPOS access, investment and savings
accounts, personal and home loans, credit and debit cards.
Many credit unions also offer investment advice, financial planning services,
managed funds and insurance products.
According to CUSCAL, Credit unions have a strong tradition of delivering
services to country Australia. Their membership now extends to all but six
postcodes in Australia, and is not restricted by geography, community or
CUSCAL explained that:
Credit unions are particularly well represented in country Australia,
with a high market penetration. Over 70 credit unions base their activities in
primarily non-metropolitan areas, with industrially bonded credit unions also
serving members outside city areas...
In towns such as Narromine, Broken Hill, Georgetown, Naracoorte,
Moe, Morwell, Armidale, Narrabri, Tamworth, Yarrawonga, Wauchope, Orange, Mount
Gambier and Lithgow, more than 40% of the local community are members of a
In smaller communities such as Trangie, Woodburn, Evans Head,
Werris Creek and Mungindi over 75% of the local population are credit union
CUSCAL further noted that in the first six months of 2002, credit union
branches had opened in many locations where the major banks had withdrawn their
branches including Golden Grove, Joondalup, Sunbury, Violet Town, Ganmain,
Coolaman, Murrurundi, Coonamble, Walgett and Brewarrina.
According to the Wagga Mutual Credit Union, it has been at the vanguard
of development in returning financial services to country towns abandoned by
the banks. It went on to state that ‘Credit Unions per se, have been
instrumental in providing banking services to country towns since starting-up
in Australia after the Second World War’.
Credit unions also embrace new technology to provide services to their
customers. CUSCAL informed the Committee that due to a smaller branch network
than the major banks:
Credit unions...have utilised innovative service delivery channels
throughout their operation. The credit union industry has been at the leading
edge of innovative developments in technology—Australia’s first ATM was
installed by a Queensland credit union in 1977, the first pilot EFTPOS facility
in Australia was conducted by a credit union in 1981, and credit unions were
early pioneers of telephone and other remote access banking.
They also have mobile service centres operating across communities and
workplaces, volunteer representatives working through communities and
workplaces and information kiosks and service options through
The reach of credit unions into country Australia was facilitated under the
former CreditCare program (see chapter 10 for details on this program).
Building societies have existed in Australia since 1850. On 1 July 1999,
after being under state legislation for 140 years, building societies became
authorised deposit-taking institutions.
As noted earlier, they are now licensed under the Banking Act to
undertake the business of banking.
8.17 The modern building society is a community-based institution that
provides banking and financial services, with special skills in housing
finance, to many Australians.
With only 16 institutions, building societies hold a small share of the retail
banking market. Nonetheless, according to the Australian Association of
Permanent Building Societies (AAPBS), its members are located in key regional
cities in Australia.
As a financial co-operative they engage in financial deposit taking and
lending to members. The majority of building societies are mutuals and while
profitability is important to them they are ‘not readily comparable with the
major banks whose first objective is profit maximization’. Mr Jim Larkey,
Executive Officer, AAPBS, explained that ‘mutual building societies do not pay
dividends but ‘pass back benefits in either or both lower mortgage rates and
higher deposit rates’.
Barriers to entry
As noted earlier, the decision to provide banking and financial services
to a rural or regional community is ultimately a commercial one for financial
institutions. They weigh up the costs of providing the service against the
expected returns. Although credit unions and building societies are
member-owned and not necessarily driven primarily by the need to make high
profits, they are a business and if not commercially viable will fail.
8.20 Small ADIs face a number of issues in operating their businesses in
rural and regional Australia. The following section examines some of the
obstacles faced by credit unions and building societies in establishing
themselves in country Australia which include:
- high start-up costs;
- portability and banking practices;
- prudential regulations;
- requirements under the Financial Services Reform Act;
- their status as non-bank ADIs; and
- experience in servicing the needs of country Australians.
Start-up costs are a significant barrier to credit unions and building
societies seeking to enter new areas in regional Australia. The CreditCare
experience clearly showed the costs involved in moving to areas seen as
‘non-commercial’ by other providers as a major stumbling block (see chapter 10,
The new entrant is expected to provide face-to-face services that are expensive
to deliver. The main costs associated with establishing a facility involve the
initial feasibility studies and planning, the hiring and training of teller
staff, renting premises in a convenient locality, IT connection, fitting out
the premises and providing security.
8.22 Credit unions are particularly constrained by their limited
opportunities to raise capital. Mr Lovney, CUSCAL, explained:
By definition, credit unions cannot raise capital from the
marketplace, so a new institution has to have an amount of capital sufficient
to meet its regulatory requirements and sustain its operations until it can
start to support itself. There are not very many small institutions or groups
of people with the wherewithal to do that. More commonly, large credit unions
or credit unions that are relatively well capitalised will make a decision to
open a new branch and employ some of that capital. It is notoriously difficult
to start a new credit union. For just that reason, we have seen very few
places—a handful of them—in the last decade or so where new credit unions have
Credit unions have made known to the Committee that
they would welcome a review of support options for providers moving into
Portability and banking practices
The process of establishing an over-the-counter banking facility may be
further frustrated in towns where a major bank has closed its doors but still
seeks to retain its valued customers.
According to CUSCAL, credit unions have experienced the ‘sharp end’ of
banking practices where they have opened services in areas where banks have
left town. It drew attention to some bank practices that create difficulties
for a new entrant in establishing its customer base. In brief, CUSCAL
maintained that when withdrawing services, ‘the banks have taken steps to keep
more lucrative customers through bundling of services, fixed term loans, and
maintaining remote ‘personal bankers’. Dr Gary Lewis described this practice as banks ‘creaming off’ profitable
activities which leaves credit unions with expensive transaction business.
Banks sought particularly to ‘lock borrowers in’ by offering
attractive rates on loans. Business owners, in particular, were used to being
wooed by the banks and often expected a credit union to be more competitively
aggressive to attract their business. Many elderly people, who had banked with
a particular institution all their lives, ‘remained loyal’ to that bank for
major banking purposes and used a credit union only for simple transactions.
This practice of ‘creaming off’ or ‘cherry picking’ the products or
customers where the margins are highest was also referred to in chapter 5.
In CUSCAL’s view such practices affect the viability of the alternative
In some areas new institutions have been left with transaction
based (and less profitable) business—effectively subsidising new services from
members in other communities. As mutuals and not-for-profit institutions, a
credit union’s capacity to extend this support is limited.
The Electricity Credit Union of Queensland provided a practical example
of how a bank withdrawing its branch from a locality can thwart the endeavours
of a new entrant to attract patronage particularly highly valued customers. The
credit union was proposing to establish a facility in the small town of
Blackbutt where the National had closed its branch. Mr Geoffrey Maudsley,
Chairman, Electricity Credit Union, informed the Committee that the National
approached local businesses and offered a better deal than the credit union
such as EFTPOS machines at reduced rates. He explained:
They knew that the credit union was trying to get EFTPOS
facilities. It was no secret that they were refusing to sign interchange
agreements and trying to squeeze the credit unions out of that situation. That
is why the businesses have not come on board.
Consequently, all the credit union is dealing with is ‘the mums and dads
and the pensioners’. Mr Brittain told the Committee that the local council
subsidises the service to keep it going.
The Traditional Credit Union in the Northern Territory experiences the same
problem only in its case, the major banks ‘openly encourage’ their less valued
and more costly Indigenous customers to switch to the Credit Union.
The Committee appreciates the problems faced by smaller ADIs attempting
to enter the market where the major banks are courting the more profitable
customers. As long as the market practices of the banks, however, are fair and
proper the Committee accepts that the difficulties created for the smaller ADIs
stem from competition in the market place. Nonetheless, it is another matter
should such practices be anti-competitive. Chapter 4 dealt at length with the
difficulties experienced by customers in switching accounts—costs involved in
closing and transferring loans and ‘the rigmarole the bank makes them go
through in changing accounts’.
At that stage in the report, the Committee was looking at branch closures and
the problems encountered by customers in transferring accounts to a new service
provider. In summary, it found that customers were unwilling to switch accounts
The Committee now turns to look at the problems of portability from the
view of the service providers. According to CUSCAL, the obstacles which
consumers face in transferring funds between financial institutions stifles
competition and inhibits the capacity for non-bank ADIs to move into new
markets. It is referring to structural impediments to the transfer of accounts
concerned with direct debits through to periodic payments of other types,
payroll issues and the transfer of information from one institution to another.
- loyalty to and familiarity with their bank;
- difficulties in transferring details of accounts from one
institution to another;
- difficulties and penalties associated with unbundling their
package of accounts; and
- costs related to closing and opening various accounts especially
mortgage arrangements which appear to be the main impediment to changing
When we look at the banking sector in the UK, we see that the
major banks there have taken initiatives that are about assisting consumers to
move between institutions much more easily. They have introduced customer
mandates that enable information to be transferred between financial providers,
and they also guarantee to meet certain time frames in ensuring, for example,
that direct debits are wound up quickly and transferred to an institution.
CUSCAL wondered whether competition could be improved by putting in
place mechanisms to make it easier for customers to shift from one banking
institution to another.
It recommended that ASIC convene an industry working group to review banking
practices in this area of portability of accounts.
Indeed, the United Kingdom Competition Commission recently produced a
comprehensive report on the supply of banking services to SMEs which found a
reluctance on the part of SMEs to switch banks because of perceived complexity
of transferring for little financial benefit, the perceived significance of
maintaining relationships with a particular bank and ‘the ability of the
existing bank to negotiate lower charges or otherwise respond if there is a
threat of switching’. It referred to the ‘nightmare’ of switching and the ‘hassle factor’ of
transferring business from one bank to another.
It made a number of recommendations to remove barriers to entry including, inter
alia, requiring banks:
- to complete a substantial percentage of all account switching
within five working days where no borrowing is involved and in all but the most
exceptional cases ten working days if borrowing is involved (in the absence of
security), with compensation if those timescales are not met;
- (as part of the previous point), to publish their performance
objectives and their efficiency in achieving them;
to examine ways to allow more rapid transfer of security and
publish a report on this within nine months of publication of this report; and
- to provide a portable credit history on request to a timescale
and format to be approved...
The Committee recommended in chapter 4 that a clause be inserted in the
bank branch closure protocol that makes a clear statement of intention that a
bank closing a branch will facilitate the transfer of accounts to another
institution of the customer’s choice. This undertaking was to include the
timely and orderly transfer of information and documentation. Since this
recommendation was in the limited context of a branch closure, the Committee
makes a further recommendation dealing with the broader problem of impediments
to the transfer of accounts. It regards this as a competition issue and
believes that the ACCC would be the appropriate regulator to investigate the
The Committee recommends that the ACCC convene an industry working
group that would include consumer associations to review current practices in
the transfer of accounts from one financial institution to another. The group’s
objective would be to determine whether there are impediments to the switching
of accounts and, if so, to formulate best practice guides that could be used as
a model to facilitate the transfer of accounts to be incorporated in the
Banking Code of Practice.
This process would:
- provide ADIs with the
opportunity to review their policies and practices, especially in light of the
findings of the United Kingdom’s Competition Commission;
- inform consumers about the costs
involved in switching accounts;
identify any practices that
unnecessarily place a cost on consumers and are barriers to new entrants;
- promote a more open and
competitive industry; and
- encourage ADIs to adopt current
It should be noted that the Banking Code of the British Bankers’
Association contains a provision that the bank will co-operate with customers
deciding to move their account so that the transfer is made as efficiently as
Credit unions have indicated their desire to expand their services into
rural areas but believe that they are constrained by their limited ability to
generate a profit margin. As noted earlier they come under the same regulatory
umbrella as the major banks and are required to meet the same obligations as
their larger competitors. Some smaller ADIs see the prudential regulations as a
significant brake on their ability to establish new outlets. 
The Wagga Mutual Credit Union agreed with the view that the credit
unions’ lack of capital inhibits them from taking up more opportunities to
expand services to country towns. It noted that ‘regulators require all
Approved Deposit taking Institutions to hold a minimum level of capital against
risk-weighted assets in their balance sheet’.
The Australian Centre for Co-operative Research and Development
(ACCORD), in particular, was concerned that there may be a number of legal and
regulatory obstacles to the creation of banking and financial institutions. In
its opinion, these impediments are most evident in ‘the near impossibility of
forming new locally-based credit unions’ because of the demanding nature of
current capital adequacy and prudential requirements imposed on large and small
8.37 It recommended that full consideration be given to the extent to which
existing financial institutions serve local and regional business needs, with
the view to expanding available services for business and community enterprise
finance in regional and remote communities.
It also called for a thorough investigation into the effect that existing
financial and banking regulatory requirements have on the establishment of new
financial institutions in meeting the needs of business and community
APRA acknowledged that capital remains one of the challenges for smaller
ADIs. It told the Committee:
Unlike non-mutual organisations that can raise external
capital—for example, by way of share issue—credit unions are unable to raise
share capital on this basis. It is their very mutual structure that creates
this problem. The industry has for some time been looking to develop a viable
tier one capital instrument that will not trigger demutualisation, but has yet
to achieve this. APRA is more than happy to consider industry proposals, but in
the interests of depositors these must meet the fundamental criteria for
recognition as tier one capital.
In explaining the capital adequacy requirements for ADIs, APRA told the
Committee that the minimum capital ratio is eight per cent which, according to
Mr Brandon Khoo from APRA, is ‘sacrosanct’ and cannot be breached.
A higher ratio can be determined depending on the risk exposure of the
institution. In regard to credit unions, Mr Stephen Glenfield informed the
Committee that APRA’s average capital adequacy requirement for credit unions
was about 15 per cent with the banks averaging 10 per cent.
There would be few allowed to operate at that level [the minimum
8 per cent], because of the size of the capital base and the risk of a
particular bad loan tipping you under. What we say to them is, ‘The minimum is
eight per cent. We would expect the board to set a reasonable prudential buffer
over that to allow for the sorts of write-offs that we might not be aware of
Dr Roberts added:
Even if the credit union board were incredibly conservative and
prudent, it would still be exposed to the range of uncertainty and the vagaries
of the economic climate, so some small margin or some margin above eight per
cent is, in our view, the absolute rock bottom for even the best-run credit
The Committee understands the difficulties that credit unions have as
mutual organisations in raising capital and the limitations that the capital
adequacy requirements place on these institutions in expanding their business.
Nonetheless, it accepts the importance of having in place sound prudential
practices designed to protect the interests of depositors and endorses APRA’s
The Committee notes APRA’s willingness to examine proposals to
‘develop a viable tier one capital instrument that will not trigger
demutualisation’. It recommends that APRA in consultation with credit unions
and building societies explore this proposal.
Requirements under the FSRA
CUSCAL submitted that the implementation of the Financial Services
Reform Act (FSRA) was currently causing a major diversion of
resources away from credit union member services into regulatory compliance. It
argued that in relation to deposits and non-cash payment products, the FSR
regime had introduced a significant new compliance burden with little benefit
Policy Statement 146
The AAPBS reinforced the views of CUSCAL that the FSRA creates
difficulties for ADIs in rural and regional Australia and cited in particular
the problems in providing basic well-understood banking products. It submitted
that the training requirements under ASIC’s Policy Statement 146 (PS146) in
relation to basic products and non-cash payments facilities were ‘onerous,
overly prescriptive and, in our view, unnecessary’.
Under the FSRA, all credit unions and building societies require an AFS
licence to deal in and advise on deposit and payment products. Before granting
a licence, ASIC must be satisfied, among other things, that an applicant will
be able to comply with its statutory obligations, including those relating to
training and competency. PS146 sets out minimum standards to be met by people
who provide financial product advice to retail clients. ASIC has prescribed the
lower Tier 2 level of training for basic deposit products, related non-cash
payment facilities and most general insurance products.
The Committee dealt with this matter in its Report on the Regulations
and ASIC Policy Statements Made Under the Financial Services Reform Act 2001
tabled in October 2002.
On 22 January 2003, ASIC released a number of updates to PS146 which
took into account requests from industry for further clarification and the
findings of this Committee in its report. They address concerns about costs and
unnecessary training. According to ASIC, the revisions provide greater
flexibility to licensees in the development and assessment of training courses
for basic deposit products (BDP) and related non-cash payment products. It
removes the need for BDP training courses to be assessed by an authorised
assessor and placed on the ASIC Training Register. ASIC said that this change
would relieve licensees of having to arrange a course assessment by a
registered training organisation.
CUSCAL, one of the main critics of PS146, believed that the revised
version went some way to addressing the problems that had arisen through the
interpretation of PS146. It concluded:
Our principal concern with 146 as it was written was that it
enabled training providers to, in effect, have the whip hand themselves, and
they were dictating what requirements institutions needed to fulfil. I think
the advantage in the new model is that it allows institutions to make some of
those training decisions for themselves and to make an assessment of how they
want to train their staff.
...Equally, the streamlining provisions that have been proposed
offer considerable benefit and flexibility to small institutions but, in
effect, do no more than reinforce what was in fact the government’s original
intention when the bill was passed...
The Committee acknowledges the work of ASIC in arriving at a
satisfactory resolution on this matter of training. While PS146 is concerned with
training, other concerns remain about the compliance costs associated with the
current regulatory regime.
Disclosure requirements and other compliance issues
Although CUSCAL welcomed the recent changes to PS146, Mr Lovney still
felt concern over the resources that small institutions were having to expend
to comply with new requirements under FSR for products ‘which are essentially
capital guaranteed’. In summary, he stated:
We think the changes have gone some way toward ameliorating some
of those risks but we think the FSR regime is still a significant impost for
some institutions which are in effect just deposit and loan providers.
While CUSCAL supports legislative and non-legislative measures aimed at
protecting consumers of banking and financial services products and services,
Mr Lovney noted that as an industry the credit unions often find themselves
facing complex and overlapping sets of requirements.
He cited in particular disclosure requirements which in his opinion ‘would
benefit from a more holistic understanding and appreciation of how they impact,
particularly in the case of smaller institutions, where they have a
disproportionately large impact on costs and compliance costs’. He explained
Disclosure obligations for financial services customers are
regulated by the Commonwealth by ASIC, through the EFT code. ASIC also requires
that credit unions have a code of practice which regulates disclosure. The
Financial Services Reform Act lays on top of that another system of disclosure
relating to financial services generally. The uniform consumer credit code sets
out disclosure requirements in relation to the provision of consumer credit,
and we have just seen amendments to that in some jurisdictions, most notably
New South Wales, that overlay further disclosure requirements for the provision
of consumer credit under fixed term contracts.
The AAPBS raised similar concerns. It stated that building societies
accept their fair burden of compliance with prescriptive legislation and
regulation. It noted, however, that smaller ADIs ‘feel these costs (per
customer) more than the majors.’ As a consequence, it concluded:
...the mounting imposition of costs originating from government
regulation will necessarily impede the provision of new services and the
continuation of existing services which may be marginal for institutions
because of the location of those services in regional and rural Australia.
The Traditional Credit Union (TCU) provides an example of the heavy
costs incurred by a small financial institution, especially one working in the
more remote areas of Australia, in meeting regulatory requirements. It should
be noted that this institution provides services for Indigenous communities
where English is not always the first language and where languages differ from
community to community. Ms Bev McMillan from the TCU set out in
detail some of the costs associated with complying with the regulations:
The Financial Services Reform Act has brought about a lot of
changes in our documentation, to start with. Previously, for the sake of our
members, we have kept all our product information very basic so that it is easy
for them to read and understand, but with these FSRA requirements we have to
have a two-page product disclosure statement on every product, we have to have
a full product service. In other words, every time we sign on a new member we
have to give them an inch thick of paperwork with all the regulatory
requirements of using our services and the products, their rights of reply, the
Privacy Act, code of conduct, and terms and conditions of use.
But we are not just talking about basic deposit facilities;
we have to take the education of Aboriginal people further so that they know
how to use modern products. That alone costs us a lot of money. The legal costs
would probably be between $30,000 and $60,000 to get the licence through. A
requirement of FSR is that we have to have a full network system and that also
has to be available in our remote branches. So we have to upgrade our
networking system and we have to provide printers into every single branch
because when a new member signs up we have to be able to guarantee that we have
the latest updated documentation. It has to be live online to print off as
required. That is going to cost us in the vicinity of $40,000.
We have to upgrade the training of our staff, which is the
major issue. Before, our staff just had to understand and advise on depositing
and withdrawing, but now they have to have a full understanding of all our
products and what they do. So we have to upgrade and give them a higher level
of achievement in their training. To do that we have to upgrade the training
course. We convert all nationally accredited training into a language and a
product that is user-friendly for our Aboriginal staff who still have English
as their third or, sometimes, fourth language. So that is another cost. We have
to employ a new full-time remote training officer to incorporate that
additional training. It does not take long to get to $200,000-plus.
The Northern Territory Government acknowledged the TCU’s argument and
Small credit unions face compliance with the Banking Act,
Corporations Act, Consumer Credit Code, Privacy Act, internal and external
audit and regular inspection by the Australian Prudential Regulatory Authority.
While regulation is essential, existing restrictions on credit unions, the TCU
claim, are more appropriate to much larger urban-based organisations.
Together with the high costs of complying with the requirements of the regulatory
regime, the TCU carries the additional costs entailed in providing services to
small, dispersed and remote communities. The Traditional Credit Union is
discussed in detail in chapter 16.
Clearly, there is strong evidence that the current regulatory regime
places an onerous burden on smaller ADIs in their endeavours to establish a
presence in rural and regional Australia and more particularly in remote areas.
The Committee fully acknowledges the importance of having a robust regulatory
regime that will protect the interests of consumers. It believes, however, that
the regime should be flexible enough to facilitate new entrants into a market
where there is an obvious need for services.
The Committee supports the objectives of the Financial Services
Reform Act 2001 and recommends that the Government monitor its
implementation and related regulations.
Specifically, the Committee recommends that APRA and ASIC consult
with CUSCAL, smaller ADIs and other interested parties about the impact of the
regulatory regime on the ability of ADIs to meet the banking and financial
services needs of Australians living in rural, regional and remote communities.
The Committee further recommends that following the consultation, the two
regulators prepare a report for government on the costs of compliance under the
current regulatory regime, its effect on competition, and whether and how the
costs could be minimised without compromising consumer interests or prudential
standards. The report is to be tabled in Parliament.
The Committee also recommends that the consultation and report
process give particular attention to the delivery of banking and financial
services to Indigenous communities in remote Australia.
Status of non-bank ADIs
A field worker with the project CreditCare, Mr Tom Watson, observed that
one of the most significant hurdles that had frustrated credit unions in
competing effectively with banks in the retail banking industry was that:
...by and large, government and semi-government bodies were not
permitted to bank with so-called non-banks. One by one, we managed to get that
legislation changed in all states.
The Hawker Report also noted that most states had moved to remove
restrictions that prevented government bodies from using credit unions or
building societies for some of their business transactions. Residual bias
against credit unions, however, seems to have persisted.
Indeed, CUSCAL felt strongly that, despite the removal of many statutory
barriers which had prevented them from competing with banks, credit unions
still suffered from lingering prejudices. It maintained:
Regulated bodies and the wider community need information and
education about the ‘ADI’ concept to promote competition and choice in banking
services. We seek the support of legislators and regulators in overcoming
entrenched attitudes that discriminate in favour of banks.
CUSCAL cited the example of Victoria’s Legal Practice Board which it
claimed has refused to approve any credit union to hold solicitors’ trust funds
since the relevant State legislative barrier was lifted on 1 January 1997. It
told the Committee that in the case of the Legal Practice Board:
...we have a number of solicitors in regional and rural areas
where there are no banks who want to bank with their local credit unions. But
the Legal Practice Board says, ‘It doesn’t matter what APRA says; it doesn’t
matter what the government says. We don’t think that credit unions are safe,
and we require people who hold funds on behalf of legal practitioners to have a
Standard and Poor’s rating or a Moody’s rating of AAA or above.’
CUSCAL also mentioned the Victorian Health Promotion Foundation which
informed CUSCAL that it would only invest with banks and bodies where there was
‘full recourse to a bank or government guarantee or indemnity’. CUSCAL had no
doubts that credit unions and building societies were being discriminated
against and denied opportunities to support local businesses.
In response to the statements made by CUSCAL, the Legal Practice Board
of Victoria advised the Committee that it is required under the Legal Practice
Act to ‘discriminate’ in its approval of institutions associated with receipt
of trust account money. It noted that ‘as is prudent, from time to time the
Board reviews the basis on which it exercises its discretion’. The Board
reviewed its policy in late 2002 which now explicitly rules out of
consideration for approval, only one category of institution—foreign bank
branches. The policy stipulates that an ADI is required to have a minimum
long-term rating of A (S&P/Moodys) and a minimum short-term rating of A-1.
It states further that ‘any ADI with a rating lower than the determined short
and long term minima will only be considered where the Board believes that
special circumstances apply’. In looking specifically at regional and rural
Victoria, the Board told the Committee that it had specifically considered the
Hence its approval of Bendigo Bank and its associated Community
Banks for the receipt of Trust Account Monies. This approval is despite Bendigo
Bank not meeting the ratings criteria set out in the Board’s policy. The Board
has taken the view that the exercise of its discretion based on access to
service is of relevance.
The Committee appreciates both CUSCAL’s view and that of the Victorian
Legal Practice Board. It understands the frustration of the credit unions in
not being able to service particular sectors because of perceived risks. It
also sees merit in trustees acting with caution in meeting their fiduciary
duties. The Committee believes that CUSCAL is right in raising its concerns
about discrimination and that the Legal Practice Board is equally right in
reviewing its policies, taking account of its responsibilities and exercising
its discretion in determining the institutions it deems appropriate for the
receipt of trust account monies. Clearly, under the new regulatory regime
credit unions will have the opportunity to build on their reputation and extend
their range of transactions.
Lack of experience in servicing the
financial needs of farmers
A number of financial commentators suggested that credit unions are not
equipped to deliver the full range of financial services that banks provide. In
particular, they noted that credit unions are not experienced in rural sector
farm and business lending.
Mr Fraser Read-Smith, Chief Executive, Heritage Building Society,
explained that the Society had recently entered into the business lending
market but not rural lending. He explained:
It is certainly not a lack of demand in an area like this, but
it could be lack of experience. This is a very conservative organisation and
our board has taken the view that we should stick with our knitting. Going into
rural lending would require a different culture and a different type of banking
expertise from what we have as an organisation. I would not rule it out as
something that we might venture into in the future, but our latest movement in
that respect has been into business banking. We have gone from being just a
retail banker to now becoming a business banker. That is certainly enough for
us to handle in the foreseeable future.
Instead the Heritage has referral arrangements with other
organisations for customers who require rural loans.
The Committee accepts that commercial and rural lending are not the core
business of credit unions and building societies and that sensibly they are
careful about entering areas of banking where they do not have experience or
expertise. The Heritage shows that while they are prepared to expand their
areas of activities they are doing so gradually and with caution. In the
meantime, they are prepared to work with other organisations to ensure that
their customers’ needs are met.
Levy on industry
The AAPBS also raised an issue not touched on by the credit unions—the
matter of the levy structure which funds APRA. The levies paid by prudentially
regulated financial institutions are intended to cover the costs of APRA, the
consumer protection functions of ASIC and the ATO.
AAPBS told the Committee:
As smaller institutions look at options for perhaps taking up a
service, the inequity of the levy imposed by the Treasurer on building
societies depositors vis-à-vis those of the major banks, understandably rankles
with directors and managers seeking to respond positively in rural Australia.
In 2000, the chairman of Heritage Building Society stated that the
society paid supervisory levies that were 30 times the level of the National
Australia Bank and 20 times the ‘other majors’ when expressed as a percentage
of total assets.
Mr Jim Larkey, Executive Officer, AAPBS, after the announcement of the
2000/2001 ADI levies, claimed that they ‘perpetuate the gross unfairness of the
funding system on middle sized ADIs’. He maintained that, among other things,
the distortions and inequities arising from the levy legislation and the future
funding of APRA ‘warrant an urgent change to the currently unfair Australian
approach to funding APRA’s supervision of ADIs’.
8.67 APRA believed that the main concern by smaller ADIs was that major banks
have a maximum impost which is set at $1.125 million, which means in effect
that on a pro rata basis banks are paying proportionately less. In other words,
the smaller ADIs hold the view that they pay too much and the large banks, in
particular, pay too little. APRA argued, however, that a very small institution
still requires a minimum amount of supervision and a very large institution
requires less than $1.125 million worth of supervision. It believed that the
setting of the minimum and maximum amount is fair to the smaller part of the
industry. Mr Khoo noted that the overall levy structure is currently under review by the
The Committee recommends that the Government in its review of the
levy structure give close consideration to the concerns of the smaller ADIs
with a view to easing this burden. Further that the matter be included in the
concerns to be taken up by APRA and the industry in the review of compliance
costs mentioned in recommendation 7.
A number of communities faced with reduced banking services have
considered establishing a community bank. This model of banking has gained
ground steadily in Australia and earned widespread acceptance.
8.69 Many submissions expressed support for the creation of community banks.
They appreciate that a community bank reflects the priorities of members of the
local district and brings additional benefits to a community. The Edenhope and
District Community Bank Steering Committee saw the establishment of a community
bank as the solution to its financial services problem and pointed out that
half of the profits of the bank are returned as community dividends. It stated that ‘no wonder community banks are opening up throughout the country
at a rapid pace.’
Indeed, a key to the success of community banks is their close connection with
local residents in that they use local investment to establish market share
quickly and create customer loyalty.
The following section briefly discusses two community bank models—the
Bendigo Bank and the Heritage Building Society.
The Bendigo Bank model
In June 1998, Bendigo Bank opened the first community bank franchise in
Australia at Rupanyup and Minyip, Victoria. This experimental branch provided a
model for the successful development of a network of community banks throughout
Australia. Community bank branches now operate in 110 communities located as
far north as Queensland’s Sunshine Coast, south to Geeveston and Dover in
Tasmania, the eastern seaboard’s East Gosford and Collie in the West.
Bendigo Bank reported in September 2003 that it had been a significant year for
their community bank enterprise. It noted the following milestones:
Bendigo Bank’s community banking model with its community empowerment
and self-help focus has much in common with the philosophy underpinning credit
unions. Even so, it has some characteristics that set it apart from the credit
union model. The most distinctive features of the community bank under the
Bendigo Bank model are:
- opening of the 100th Community Bank® branch in San
- opening of Tasmania’s first two Community Bank® branches;
- more than $1.2 million in Community Bank® profits returned to
communities in both dividends to shareholders and community projects;
- National Community Bank® network achieving $3 billion in banking
- opening of the 250,000th Community Bank® account.
The research report by KPMG, Small Business Banking in Australia,
noted the work being done by the Bendigo community banks which are offering
investment products such as the Regional Investment Fund to promote small
business growth in the regions.
- It is a franchise of Bendigo Bank—a company is established to
raise the capital required for the start up and ongoing maintenance through
local investment. Capital required varies but can involve up to $750,000.
- It involves the local company employing staff and providing
infrastructure costs. Bendigo Bank bears credit risk and provides ongoing
support for operators, including use of the bank licence and name.
- Not all customers are shareholders, and the drive for return on
equity may see costs for some customers increased or service benefits unevenly
- It is not an easy option, and it may be difficult for
disadvantaged rural towns to contribute to the start-up costs required.
- Respondents are prepared to accept minimal returns (the majority
did not expect any return) which could only be explained as a contribution to
establish a bank branch.
The Heritage Building Society model
The Bendigo community bank concept, although the best known, is not the
only model. The Heritage Building Society has developed its own distinct
version of a community-based bank that is gradually growing in popularity. The
genesis of this model sprang from an active and enthusiastic community group in
the small town of Crows Nest north of Toowoomba that was determined to see
better banking and financial services in their district. The town has a
population of approximately 2,000 with a catchment area taking this figure to
6,000. This group, the Progressive Community Crow’s Nest Ltd, (PCCN) explored
many options but finally entered a partnership arrangement with Heritage
Building Society. Mr Howard Littleton from the PCCN explained:
The Heritage community banking model we settled on made the most
sense to our community. It was a great deal less expensive to start, (less than
half the cost of the other main community banking model) and, once the doors
were open, more money stayed here.
They needed an initial outlay of $60,000 but decided to set a goal of
raising $100,000. The group started a company which allowed them to raise the
money. Membership was $10 which entitled a member to contribute to the capital
of the company by depositing money with the company of between $100 and $5,000.
Members were asked to keep the money with the bank for three years but in
hardship conditions the money would be returned.
8.76 From the very beginning the company was keen to generate broad community
support and placed a limit on the contribution at $5,000. Pensioners and
children are among its members.
After exploring many options, the company approached the Heritage
Building Society with a proposal. They presented the Society with a wish list
of requirements they regarded as important such as sensible trading hours. The
company also placed a high priority on the employment of a senior
manager—someone in the community, who understood the full range of people’s
needs from residential through to commercial and business banking activities
and would make himself available to the community.
8.78 Following further negotiation, the company entered a joint venture with
the Heritage Building Society. The branch has performed better than anticipated
with the $100,000 outlay recouped and the branch now making profits. The PCCN
has announced the first distribution from its share of the community branch
profits in the form of community grants totalling $46,000 to a number of local
The initiators of the scheme cannot understand why more communities have not
taken a similar route.
The Nanango Shire Council adopted the Heritage community bank model and
opened its branch in December 2001. Although still in its infancy it is ‘very
effective and well supported’.
The advantages offered by a community bank
As established in chapter 3, local residents and businesses value the
presence of a bank branch in their town. It means that they are able to conduct
their banking in convenient, safe and familiar surroundings and can seek advice
from staff with local knowledge. Indeed, the benefits of a community bank
extend far beyond simply providing basic bank transactions. The following
section looks at some of the broader benefits offered by a community bank.
Reinvigorate the economic life of a
Mr Gregory Gillett, Bendigo Bank, noted that the development of a
community bank creates opportunities to boost economic activity in the
community. He stated:
What we like about the community banking side of things, with
the 700 directors et cetera, is that it has created a lot of new aspirations in
these areas. Many of these people have never been on a board before, so we have
an obligation to teach them about the duties of directors and about running
companies. In a lot of those locations, it is the first new business that has
actually been established in 50 or 100 years...what you invariably get is a rush
of enthusiasm, excitement and a bit of aspiration happening, which seems to
feed on itself and create renewed confidence and enthusiasm in these areas.
The Nanango Shire Council provides an example of the process followed
and the motivation needed to establish a community-based bank. It informed the
Committee that the Westpac and Commonwealth banks closed their branches in
Nanango and left an in-store agency in a pharmacy and access to some services
through the Post Office. Through the dedication of a steering committee, a
community bank was established with the aid of Heritage Building Society.
Mrs Wendy Zerbst explained that the main motivation in the community
pursuing the community bank model in Nanango was ‘not just having our own
financial services but maintaining the levels of service within this town so
that it continues to grow rather than decline, because when services are
withdrawn people go away’.
The desire to keep businesses in the local area was also the motive behind the
new Lockhart Community Bank.
The added advantage in establishing a community bank stems from the
involvement of local people and the focus on developing and promoting the commercial
life of the district. Mr Gillett told the Committee:
...we want to see our communities regain control of the capital
flows within their areas and regain control of the economic destiny of their
areas, rather than seeing the capital outflows we see today through
superannuation, managed investments and all those sorts of things...whilst there
is certainly a cooperative spirit to what we are doing, there is very much a
commercial edge to the way it is set up.
He stated that these centres start as bank branches but then evolve into
community enterprises as time goes by. They become the centre for managing all
the economic enterprise in that district.
The very process requires the community to take the initiative:
They raise anywhere between $350,000 and $500,000—usually
between $400,000 and $500,000—for this particular venture. They have to prove a
business case which has sufficient banking volume in it to pay back that sort
of capital investment. They then have to marshal, engage and unite all the people
in that town to come together as a buying group to make it a successful model.
Dividends for the community
Local leaders have high expectations of what a community bank can
achieve in their town. Mr Samuel Smith, President, Gladstone Community Development
and Tourism Association and Member, Rocky River Community Bank Steering
Committee, conveyed his community’s hopes in pursuing the establishment of a
community bank in their locality. He told the Committee:
We felt there was a real need. We were losing control of what
was going on in our country towns, and we felt the community bank concept that
Bendigo Bank was offering had so much to offer. We felt we would be empowered
communities with some control over our own destiny. Following the opening of
the first community bank in Australia at Minyip-Rupanyup in western Victoria
there was talk of $100,000 profit a year, which would go straight back to the
community...It was real money; it was better than trading tables, sausage sizzles
and things like that. It was money that you could really do things with. The
other big thing was, while the banks used to employ school leavers from our
high school, that stopped about 10 years ago. So we felt that we could have
control over employment also.
The Director of the Cummins and District Financial Services, Mr Jeffrey
Pearson, also suggested that there are ‘real rewards for communities that set
out on a deliberate course of self-help’.
We are retaining 50% of the profits generated from banking
business transacted by members of our community, that will, in the near future,
be made available to assist in the multitude of genuine financial demands in a
typical rural community.
As a direct result of establishing our bank we have two new
families living in our district and because they are employees of Cummins and
District Financial Services their allegiance is to this area rather than to
some remote banking entity.
Establishing a community bank
Communities endeavouring to form a community bank share many of the
difficulties experienced by credit unions seeking to establish a new presence
in a country town. They face the problems of galvanising community support for
the enterprise, of the high start-up costs involved in conducting feasibility
studies, devising a business case, covering costs while building the business,
and overcoming embedded attitudes about the soundness of ADIs that are not
8.89 In particular, the initial planning period is a crucial and time
consuming stage in establishing a community bank. The following sections look
in greater depth at the obstacles faced by communities attempting to set up a
Community support, commitment and
The message from those who had been successful in establishing their
community bank was unambiguous—the venture must be community driven and the
undertaking is not easy. Mrs Zerbst echoed the experiences of others involved
in establishing a community bank:
...there needs to be a driving force. When it is a community
venture and a joint venture, it cannot be driven by the company, it cannot be
driven by Heritage, because the success remains in getting the community behind
it, and there is difficulty finding people within a small community that have
the expertise and the drive to get it done.
From the banking side of the partnership, the Heritage Society Building
endorsed this view. Mr Read-Smith told the Committee:
We are not in the business of selling community branches to
communities. Our business is that, if they determine they have a need and they
want to work at it, we will assist them in every way we can to bring it about,
but we are not about thrusting these things down the throats of communities.
Our view is that it is the community that has got to make the running, have the
impetus, and then we will work with them and do all we can.
Leadership and business skills
Determination alone to see the establishment of a community bank will
not bring success; there must be suitably qualified people available to assist
and to run the venture. As with most community groups embarking on this
venture, the Crows Nest community group relied on community leaders and drew
heavily on the generosity, skills and experiences of professional people in
their community to launch the project on a shoestring.
Aside from leadership, organisation and commitment, the community needs
capital to establish the bank.
According to the Managing Director, Bendigo Bank, the path to opening a
community bank can ‘be long and arduous’. He explained that in most small
country towns, you need 50 to 60 per cent of the population to use the facility
if it is to work. The branch will need to generate at least $250,000 a year in
profits if it is to remain viable.
In 1999–2000, the Huon Valley Council began talks with the Bendigo Bank
with regard to the community banking model they had developed. At first, it
determined the level of support from the community by obtaining pledges.
Although it required a minimum of 250 pledges, it received 400 with a monetary
value of $346,000. Even so, the Bendigo Bank advised the Council that this
amount was insufficient.
The Council then conducted a feasibility study for which it received a
$10,000 grant. It employed a consultant to survey the community and to visit
the municipality to assess its suitability. Finally, it developed a business
According to the Local Government Association of Tasmania it has taken
two years for the Council to simply determine whether a community bank is a
viable option. The capital outlay was in excess of $25,000 with at least as
much again in ‘in kind’ effort. It stated that:
Huon Valley Council has advised that this system has been a long
and arduous process and the benefits of the alternative arrangement are yet to
be proven. Huon Valley Council has relied heavily on the support from the
community and the dedication of its elected members. Without community backing
(financial and in kind) and a whole of community approach, such an alternative
arrangement for banking services in rural or regional areas of Australia would
not be possible.
The efforts of the community were finally rewarded with the
opening of the Geeveston and Dover Community Bank, which is a franchised
business of Bendigo Bank Ltd, on 8 May 2003.
The East Gippsland Shire Council acknowledged that community banks are
an option for larger towns. It stated that the level of community financial
commitment required to set up a ‘bank’ is substantial and in most cases beyond
the resources of small rural communities.
This was the experience of the Rocky River Community Bank Steering Committee in
South Australia, which found that despite community enthusiasm, the proposal to
establish a community bank had to be abandoned. Mr Samuel Smith explained to
...it was found fairly early in the piece from the discussions
with Bendigo Bank that Gladstone on its own was not big enough but, because
Wirrabara, Laura and Georgetown did not have any bank branches, it was thought
they may be interested...They welcomed it with open arms, and we set up a
committee of 23 people, which covered those four communities. We worked very
strongly together for the 14 months we were operating. The immediate response
from the community was overwhelming, and that response was maintained right
through to the extent that, when we actually made the decision not to go ahead,
there were a lot of disappointed people and it took a bit to pull the
communities back into it.
...When we first looked at it, the level of shareholder capital
that Bendigo Bank believed we needed was $250,000. By the end of 12 months, it
was $450,000. The ball game had changed...To come into our small community of
2,500 people was going to be hard work and involved some risk for them [Bendigo
bank]. It could have been a number of years down the track before profits could
be made, whereas they already had 144 branches around Australia.
The Heritage community banking model has attempted to address this
problem of high start-up costs. Mrs Zerbst found the Bendigo Bank proposal very
expensive. In her view, less cost was involved with Heritage and by not
imposing a lot of fees such as an annual franchise fee it offered the better
The model clearly sets down the financial responsibilities of each party
to the alliance as set out below.
Table 8.2—The Heritage Building
Society Community Banking Model
Responsibilities of each party
branch premises by way of property ownership or lease.
Is responsible for
covering costs to equip the branch office with IT and computer facilities,
communication lines and equipment, possibly an ATM, office furniture,
marketing material, security facilities and signage, etc.
Covers the cost of
fitting out these branch premises to Heritage’s agreed standard.
As an Authorised
Deposit-taking Institution, provides the authority under the Banking Act for
the community branch to operate. Heritage is also responsible for all
financial and credit issues.
Makes a financial
commitment to meet its share of any expected operating deficit until
profitable operations are achieved.
Is responsible for
providing and training appropriate staff, together with all necessary systems
and procedures, as well as extensive operational support.
Overall, a number of factors combine to create an environment conducive
to the establishment of a community bank. Mr Read-Smith observed that there has
to be the right community, with the right leadership and level of community
support—‘it is a question of finding the right communities that have the critical
mass, the leadership and the community impetus to make these ventures work’.
The Committee accepts that some communities will not be able to garner
the support or raise the capital required to establish their own bank. It can
see a role for government particularly in assisting communities overcome some
of the initial obstacles to establishing a community bank. For example, the
Government could take a central role in supporting communities to explore
options and to put together a business plan. This matter will be discussed
further in the following chapter on the CreditCare and RTC programs.
Failure or take-over
At the moment the success of the community bank model is widely
acknowledged. Nonetheless, Mr Tim Moore, who has conducted research in the area
of community banks, worried about the long term credibility of such
institutions. To his mind the fact that not one community bank has closed has
the potential to lead to an unrealistic picture of their future. He suggested
that for many banks there will come a time when the benefits they provide are
outweighed by the costs of keeping them operating. He was concerned that the
closure of community bank branches has the potential to have a more detrimental
impact than the closure of other bank branches because of residents’ money
being tied up in the operation itself. He stressed the importance for
communities to consider this possibility in their decision-making.
Others saw problems arising from their success that could leave
community banks vulnerable to takeovers. The Lockhart Shire Council argued that
as the community bank model becomes more popular and gains wider acceptance it
will begin to eat into the profits of the major banks. It asserted that ‘They
must not be allowed to simply buy out the competition and then embark on
another round of closures of branch or agency closures’.
Likewise, the Narrandera Shire Council was concerned about takeovers and noted
that consideration needs to be given to legislative safeguards for community
banks to protect the franchise institution from large corporate takeovers.
A member of the Community bank at Crows Nest accepted that at some stage
other models such as the Bendigo Bank one may be susceptible to a takeover from
one of the major banks leading to a cycle of downgrading services. It noted
that their joint venture model with Heritage, allowed them to seek another
partner if Heritage wanted to ‘bail out’.
The Committee accepts that the community bank is a relatively new
development and is proving successful. It is also conscious of the concerns
about the damage that could be caused to the image of such institutions should
one fail or conversely should it be taken over in the case of its success. Such
warnings only highlight the importance of local commitment and on-going local
involvement with the enterprise to ensure that it remains a genuine community
The Committee acknowledges the work being done by community banks. They
not only provide basic banking transactions but answer the growing need for
country people to have access to local staff with a strong connection to the
district. They provide an attractive option for communities not well served by
the traditional banks.
Their ability to extend their reach into areas in need of banking and
financial services, however, is severely curtailed by the limited resources
found within many communities. High start-up costs, the importance of community
leadership and the need to make the venture a profitable undertaking, means
that not all communities have the wherewithal to support such a facility.
Evidence has shown that a commitment to and enthusiasm for the establishment of
a community banking facility is not enough to make it a viable option. There
must be a substantial capital base upon which to build a community bank.
Before leaving this section on community banks, the
Committee briefly mentions a model that has a close community focus but where
the branch is owned by the manager.
Bank of Queensland
The Bank of Queensland operates a number of owner-managed branches where
the branches are privately owned. Under this model, the owner-manager, after
making an initial outlay to cover upfront costs, enters a profit-sharing
arrangement with the Bank of Queensland. The owner-managed branches are located
in bank premises and staffed by non-bank employees.
They offer a broad range of banking services including cash/cheque deposits and
cash withdrawals, lending and the maintenance of accounts to both personal and
The focus of the owner-managed model is on community engagement and
strengthening the customer-manager relationship. They have flexibility in terms
of staffing, opening hours and local marketing. The Bank of Queensland hopes to
attract managers with a strong local connection able to relate to the community
and its needs. Because the manager owns the branch, there is a strong incentive
for him or her to develop close links with customers.
At the opening of an owner-managed branch in Murgon, the Bank of Queensland’s
General Manager Retail, stated that:
These branches are not only allowing us to expand while other
banks are reducing their networks, but ensure we are more flexible and
responsive to the local community.
This model presents the same advantages as the community bank in
restoring banking services to communities abandoned by the major institutions
and in rallying the local economy. The identical problems, however, of start-up
costs and building an adequate capital base limit the opportunities for such a
model to expand into some areas of rural, regional and remote Australia.
Unfortunately, some communities, as shown in this chapter, even with
determined commitment, cannot generate the level of support or finance needed
to establish and sustain a credit union or building society branch or a
community bank. In some cases, a town simply cannot support a fully operational
facility offering traditional over-the-counter services. This means that
communities without access to satisfactory banking and financial services and
unable to attract a credit union or establish their own bank, must rely on
other means to gain access to such services.
ADIs, both bank and non-bank, have implemented strategies to help
compensate for this lack of banking services. The following section looks at
the steps taken by financial institutions to provide an alternative means of
delivering banking and financial services to areas of regional, rural and
remote Australia that cannot support a fully operational branch.
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