Community banks defy sceptics

IT was just five years ago when the small Victorian towns of Rupanyup and Minyip joined forces with Bendigo Bank to establish Australia’s first Community Bank.

The banking establishment saw it as a quixotic response to rural branch closures, but has since been forced to change its tune.

Western Australia’s first Community Bank opened four years ago in Kulin and the concept continues to gain popularity.

The State has 23 Community Bank branches, nearly one quarter of the national total.

Regional manager Simon Cornwell said the WA branches had about 50,000 customers and their total ‘turnover’ (loans plus deposits) was $600 million.

He said three new branches were due to open in WA this year, with a further 10 communities in WA seeking to open their own branch.

The 23 Community Bank branches in WA cover a wide spectrum, from profitable suburban operations through to small rural branches that are struggling to meet the $20 million turnover figure that Bendigo regards as a minimum to be viable.

The largest is Bayswater with turnover of $70 million, helped by its success in winning the banking business of the local municipality.

Next largest is North Perth, which has 3,500 accounts, turnover of $46 million and growth of $1 million a month.

Bank chairman Nick Catania said North Perth was the number one Community Bank for home loans in WA.

“You need the right area,” he said. “You need people buying houses, you need some retail activity and you need retirees.”

Mr Catania said the board would be able to consider paying an inaugural dividend when the North Perth branch held its annual meeting later this year.

He said the next step for the branch would be to seek business and institutional accounts.

Other Community Bank branches with strong support include Forrestfield and Toodyay, with outstandings of more than $40 million, Halls Head, which is close to $40 million, and Kulin with about $30 million.

Mr Cornwell said the success of these branches was a bonus for the original shareholders.

“Now they are making money out of that service, it’s a bonus. They didn’t expect that,” he said.

Community Bank branches are a partnership between Bendigo Bank, which provides the banking licence, the products, back office and IT systems and credit assessment, and local communities, which run their own branch.

Prospective branches have to complete an extensive feasibility study and must raise capital from shareholders.

“We’ve had to say no to a few sites,” Mr Cornwell said.

He added that Bendigo went to great lengths to explain the risks that shareholders were taking on.

“Investors need to understand they are buying shares in a start-up. It’s a long-term investment, and if they get a dividend, that’s a bonus,” Mr Cornwell said.

The majority of people invested because of their commitment to the local community, he said.

However, he conceded some shareholders may not fully under-stand their investment and may confuse buying shares with lodging deposits.

“There is that misconception sometimes.”

The mushrooming of community banks has been part of a backlash against branch closures by the big banks, which have sharply slowed the rate of branch closures and, in some cases, pledged to halt all closures.

Others have sought to tackle Bendigo on its own turf.

BankWest, for instance, has opened 26 Neighbourhood Banks, which are mini transaction centres located inside existing shops.

This includes new Neighbourhood Banks in Gosnells, Yokine and Bassendean, where the bank recently closed its full service branches.

BankWest’s chief executive Consumer Solutions, Chris Whitehead, describes neighbourhood banking as a “fast and cost-effective alternative to community banking”.

“There are no pledges to collect, no ongoing costs to the community and the start-up time is only a few weeks,” he said.

Mr Cornwell said every town with a Community Bank branch had a different motivation.

The original rationale was to help ensure the survival of country towns that had lost all of their bank branches, he said, then the concept spread to the suburbs.

Now it is being taken to communities such as Byford and Gingin that have never had a bank.

In some cases, local communities have opened Community Bank branches because they are unsure about future banking services.

Mt Barker, for instance, still has several banks but the local residents banded together to open a Community Bank after one of the major banks pulled out.

Another example is Collie, where the locals were annoyed by the absence of permanent managers at the big banks.

Mr Cornwell suspects the opening of Community Bank branches may actually force other banks to leave open branches that might otherwise have closed.

“In the old days the last bank to close in a town would retain about 80 per cent of its customers,” Mr Cornwell said.

“People didn’t have much choice.

“Now if they closed, the customers would go to the Community Bank.”

Bendigo Bank’s community banking division has become a significant contributor to its overall profits.

The division lifted net profit by 68 per cent to $8.4 million last financial year while Bendigo Bank lifted its overall net profit 21 per cent to $59.0 million on the back of 33 per cent growth in lending approvals.