Australian Legislators Open Door for Credit Unions

Increased Competition Likely to Improve Consumer Service

December 15, 2010

2010_12_15_Community First_AustraliaNew regulations in Australia would help credit unions like Community First Credit Union, located in the Sydney suburb of Lidcombe, further grow its mortgage loan portfolio.

SYDNEY, Australia — Wayne Swan, Australia's national treasurer, would like to see his country's "big four" banks become more competitive. To make his point, Swan last week opened an account at his local credit union in Toombul, north of Brisbane, demonstrating his belief that credit unions can offer consumers better service and more competitive rates than banks.

The act preceded the anticipated issuance this week of new regulations that would give Australia's credit unions and building societies greater access to capital. The changes would allow smaller financial services providers, including financial cooperatives, to become a more competitive alternative to the four largest banks. Greater capital access for credit unions will mean better rates for Australia's home mortgage market, according to World Council of Credit Unions (WOCCU) Director Louise Petschler, chief executive of WOCCU member Abacus Australian Mutuals, which represents credit unions and building societies in Australia.

"If we got 20% of the home lending market, you would see a more competitive market and banks would see their margins eaten away," Petschler told the Sydney Morning Herald. "We need diversified funding, and there needs to be more liquidity in the wholesale market."

Swan's move echoes the government's desire to apply more competitive pressure on Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corp. The four banks are known as the "four pillars," reflecting a government policy that forbids mergers among the four to create even larger - and presumably less competitive - banks. By empowering smaller financial institutions, including credit unions, through new regulations and increased access to capital, lawmakers hope to create a fifth pillar that will provide better rates and services to consumers.

Government policy decisions during the global economic crisis deemed necessary to support Australia's financial system had inadvertently reduced competition in the banking and financial sector. The new measures are designed to correct the imbalance.

In support of the initiative, the government is expected a reopen a guarantee program on a limited basis for credit unions and other smaller institutions. The government guarantee would put smaller lenders in better position to raise funds in the wholesale market with the goal of increasing their share of home mortgages. The government also is considering injecting more capital into the securitization market, which currently stands at AU$16 billion, enabling non-bank lenders to raise funds at costs similar to those of the large banks.

"The Australian mutuals sector believes it is ready for a new era in banking, and there are a number of reasons why," said Daniel Newlan, senior advisor for policy and public affairs for Abacus. "The average credit union holds a capital ratio in excess of 16%, well above the average 11% held by retail banks. A credit union in Australia is backed by the federal government's AU$1 million retail deposit guarantee, just like the banks, and they are regulated by the same rules, making them just as safe."

The government's new initiative comes in the middle of the first national marketing effort launched by Abacus earlier this year on behalf of the country's credit unions. The campaign is designed to increase visibility and utilization of the country's 104 credit unions and nine building societies, which currently hold AU$73 billion in assets and serve 4.6 million members. The marketing initiative aims to grow the financial cooperative sector and increase financial cooperatives' share of the home mortgage market from less than 10% to 20%.


World Council of Credit Unions is the global trade association and development agency for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach.

World Council has implemented 300+ technical assistance programs in 89 countries. Worldwide, 68,882 credit unions in 109 countries serve 235 million people. Learn more about World Council's impact around the world at

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Organization: World Council of Credit Unions
Phone: (608) 395-2000