Credit unions outgun rivals

Western Australia’s major non-bank lenders should be thriving in the midst of a booming housing market, but Mark Beyer finds a mixed record.


WA’S three big credit unions clearly outperformed their listed rivals last financial year, with stronger lending growth and superior profits.

Last year’s top performers were Police & Nurses Credit Society and StateWest Credit Society.

Both reported healthy growth in profits and lending and also achieved substantially higher returns on equity than their local competitors.

United Credit Union also had a creditable year, achieved strong lending growth and, for the second year running, returned profits in line with its target rate of return.

The weakest performers were the two non-bank lenders listed on the Australian Stock Exchange – Home Building Society and Homeloans.

Police & Nurses reported a net profit of $10 million for the year ended June 30 2003, equal to a return on equity of 11.5 per cent.

Excluding a one-off $9.5 million gain from its merger with Energy Credit in the previous year, this represented a 54 per cent increase.

“These results are significant and further consolidate our position as one of our State’s leading financial institutions by measure of members’ activities, increase in assets and profit,” chief executive Fred Huis said.

There were strong contributions from all lending areas – housing, consumer and commercial property, he said.

Loans under management (including securitised loans) grew 16 per cent to $1.1 billion.

This does not include its portfolio of Keystart housing loans, which fell last year to $256 million.

Police & Nurses subsidiary, Western Homebuyers Housing Society, had been one of four designated retailers of Keystart loans, which are now managed internally.

Police & Nurses’ higher profit was helped by strict control over personnel and general administration costs, which fell by 2.5 per cent.

It is also pursuing interstate growth, having established a credit society for the nursing community in Victoria.

StateWest had a good year, with a 30 per cent increase in profit (excluding the $5.5 million gain on last year’s merger with Energy Credit) and 15 per cent growth in loans under management.

“The society is reaping the benefits of strategic decisions in recent years regarding investments in technology and distribution channels, as well as the economies of scale as a result of the merger,” chief executive Greg Wall said.

The higher profit was achieved despite the bad and doubtful debts expense more than doubling to $1.8 million.

Mr Wall said a new regulatory standard specifying a higher general provision was the main reason for this, though StateWest’s specific provision for bad and doubtful debts also jumped sharply.

United’s net profit in 2002-03 was $2.5 million, unchanged from the year before.

Chief executive Ian Williams said this was in line with United’s target return on equity of 12 per cent pre-tax and about 8 per cent after tax.

“While profit results over the last few years have been good, they will be difficult to match in the next financial year because of the continuing investments we are making,” he said.

A big expense looming this financial year is installation of a new banking computer system.

A highlight last year was the very strong 25 per cent growth in loans under management to $404 million.

While much of the growth was in housing loans, United also achieved growth in personal loans for the first time in several years.

Home Building Society reported strong 43 per cent growth in net profit to $3.2 million, but it was coming off a low base and the result still equated to a modest 6.5 per cent return on equity.

It was helped by stellar returns from its property development activities, which contributed nearly one third of Home’s annual profit.

In contrast, the profit from its core financial services business grew by a more modest 17 per cent.

This was reflected in the 7 per cent growth in loans under management to $757 million.

Retiring chairman Bernard Wright said Home made considerable progress during the year, with a strategic repositioning designed to improve services and offer a wider range of products.

He added that Home was completely reviewing its loan book following an independent assessment of its credit policies.

Newly appointed chief executive David Jones said Home now had “stronger people and stronger processes” in credit management.

Home’s commercial loans portfolio fell slightly last year, helping the group reduce its charge for bad and doubtful debts by 23 per cent to $1.22 million.

Homeloans had a disappointing year, with loans under management static at $4.2 billion and net profit falling 35 per cent to $4.4 million.

This was before accounting for a one-off write-down to the carrying value of goodwill ($22.5 million) and the annual amortisation charge ($2.1 million), which took the company to an overall loss of $20.2 million.

Homeloans was affected by a major re-branding exercise, as the group unified its separate State brands under a single national brand.

To support the change, its advertising spend more than tripled to $2.8 million. Homeloans also recently opened a prominent street-front branch in St Georges Terrace, which it hopes will boost its presence in WA.

Executive chairman Tim Holmes said the level of churning in the housing loans market made it difficult to achieve growth.

“Brokers are looking to refinance a lot of people, in most cases to the detriment of those people,” he said.

Mr Holmes added that Homeloans had completed the restructuring, was cash flow positive and still on the acquisition trail.

“We’ve set ourselves up for a very robust year this year,” he said.

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