BOQ Joins RediATM Network

Good news for our ATM users.  On 1 September 2010, the Bank of Queensland (BOQ) announced it would be joining forces with the rediATM network. BOQ’s 350 bank-owned ATMs will be progressively rebranded to rediATM from 1 October 2010, with all becoming part of the network by the end of the year.

Once the migration process is complete the rediATM network will boast more than 3,500 ATMs across the country, from the high streets of our nation’s cities right through to remote and regional areas.

As more organisations like BOQ continue to join, your ATM network will continue to grow and will ensure you are always able to find a fee-free ATM.

*Please be aware that only BOQ ATMs already showing the rediATM branding are direct charge free at this stage. Using any BOQ ATM that does not show the rediATM branding will still incur a fee.

Understanding Big Bank Profits

Recently, the huge profits of the big 4 banks has been getting a considerable amount of media attention. Some people, like investors and shareholders are happy with the profits while others, such as politicians, are outraged. What does the average person on the street think about it though? Do they fully understand, or even care about, the financial systems that their money is a part of?

Unfortunately for many Australians understanding bank profits or financial practices is about as interesting as reading the complete operating manual on a new toaster. This is a real shame as understanding the way money works, and how it is managed, can help people achieve long-term financial security and a higher quality of life.

One important thing to understand about the big banks is that a large part of the profits earned must be used to pay back shareholders (investors). A shareholder is basically somebody who buys a share in, or a part of, the bank and expects a return on their investment. To be able to pay these investors, the big banks need to make profits through things like higher interest rates and fees. It goes to follow that the bigger the profit, the happier the shareholders.

The huge recent profits of the big banks then, from the point of view of a shareholder can only be seen as a positive thing. It follows too that as other investors see the big banks as a profitable investment more of them buy shares in these corporations. This leads to more money being available to spend on things like salesmen and advertising. Recent studies have found that ‘the big four banks spend over $1 billion every year on advertising – that’s more than it costs to run the ABC’.

In contrast, credit unions and building societies don’t have shareholders to pay. So they aren’t interested in chasing big profits. These mutual organisations exist for the sole purpose of providing their members with financial products and services. Not being tied to profits leaves these mutual organisations in a great position to provide trusted financial advice to their members. That is a pretty serious difference. It’s almost like the difference between asking a friend or a salesperson for advice on an upcoming purchase. One has your best interests at heart while the other must be influenced by their profit margins.

Congratulations to CUFA

As many of you may already aware the Credit Union Foundation of Australia (CUFA) does some great work encouraging sustainable corporate, economic, social and environmental practices within Australia.

CUFA also works in the Asia Pacific region to develop the financial and social well being of impoverished communities. Working with local governments in an attempt to improve living standards, CUFA delivers programs such as ‘Village Entrepreneur’ and ‘Development Education’.

As a result of credit unions embracing the work of CUFA, a record level of $325,711.95 was raised in the 2009/2010 financial year. This money will allow CUFA to reach more people in 2010/2011 as the organisation continues to:

• deliver programs that benefit the Australian credit union movement
• alleviate poverty in the Asia Pacific region.

From all of us here we would like to congratulate CUFA on the fine work they do and wish them all the best of luck for the coming year. It is nice to know that while we beaver away in our offices and branches there are people who, on our behalf, are helping to improve the lives of the less fortunate.

Visit the Credit Union Foundation of Australia website.

How Much Profit is Enough?

A disturbingly large number of Australians, almost 20 per cent, apparently believe that the larger a bank’s profits, the safer the institution. At least that’s according to a recent research paper from the Australia Institute.

Even though solid bank profits reflect the Australian banking industry’s success in weathering the affects of the GFC, isn’t it time to ask: how much profit is enough?

Yesterday the ANZ announced that its nine month profit had risen 26% to $3.6bn. Last week, the CBA announced yet another annual record profit and dividend: $5.66bn.

By any measure these are huge numbers. But are they too big?

To answer this question we need to consider the size of the profit relative to the size of the bank. When we do, the result is startling.

CBA’s $5.66bn profit actually equates to a return on shareholders’ equity (ROE) of 18.7%. Put another way, for every $100 invested in CBA shares, the bank generated profit for its shareholders of $18.70.

That’s an excellent return for shareholders. But are profits of this level really needed to sustain the safety of the big banks?

Compare this with the position of credit unions and building societies.

These mutual organisations are regulated on exactly the same basis as the big banks and come with the same government guarantees on retail deposits. In many respects they are more ‘risk adverse’ than big banks, because they don’t get exposed to risky international and corporate banking ventures.

The big difference relates to profits: credit unions and building societies don’t have external shareholders to pay. So instead of maximising profits to pay out inflated dividends, they deliberately return profits to members through better interest rates, lower fees and better service.

That’s the big difference.

The recent experience of US banks is proof that high profits are no guarantee of safety in finance. Big profits don’t necessarily mean more safety. But they do mean inferior interest rates and higher fees. Just look at the cost of your bank credit card.

Not everybody appreciates this. So the Australia Institute has called for Australians to be better educated about the financial system and the options available to them.

If you’d like to know more about what we do and how we work, please ask. We’d love to talk to you.

Credit unions and building societies have an obligation to ensure the safety of members’ money and provide trusted financial advice.

After all that’s what we’re for.

Commonwealth Bank Attacked Over Profits

The Commonwealth Bank reported on 11th August a $6.1 billion profit. Yes, you read that right. Six billion dollars. Wow. That is a lot of profit. In fact, the figure is the largest annual profit recorded by any Australian bank. With the other major banks providing stiff competition in the massive profits department, the Commonwealth Bank must be happy with the result. No doubt the bank’s shareholders will be happy with the dividends they receive and the company’s directors excited about the huge bonuses coming their way.

Not everybody sees the monstrous profits of the big banks as a positive thing though as the issue shapes to become a politically sensitive one. Family First Leader Senator Steve Fielding reacted angrily to the profits by saying ‘If Labor and Liberal had any guts they would take on the big banks and make them pay for the years of pain they’ve caused ordinary Australians by ripping us off time and time again.’

Not holding himself back Fielding continued ‘The banks are a bunch of greedy thieves, ripping off Australians trying to live the dream of owning their own home.’ Greens leader Bob Brown chimed in with ‘while many Australians are pulling their belts in, the Commonwealth Bank is raking in this huge profit’.

Joe Hockey summed up the general feeling well when he said ‘the banks are going to make as much profit as they can’. That is, after all, what they do. Julia Gillard, not wanting to be left out of the discussion made probably the most helpful comment advising Australians ‘to keep the pressure on your banks by shopping around.’

Credit unions and building societies have been around for years and as people grow tired of the big bank’s methods they are becoming an increasingly popular alternative. Credit unions and building societies don’t pay dividends to shareholders or lavish huge salaries on expensive CEOs. Their structure is one of equality and putting the member’s financial goals first.

As our 2010 TV commercial suggests that is why '4.5 million Australians choose to bank at a place that isn’t a bank at all. A place with the products of a major bank but where profits go back into making better products. When you bank with a credit union or building society, it all comes back to you.'

Benefits of being member owned

Did you know that we are member-owned and as a member you are a part owner?

There is a real difference that our members enjoy by owning their own financial institution. It starts with the fact that we plough profits back into the organisation. That means better interest rates and fewer fees. There is also the benefit of real customer service, which means actually enjoying dealing with one of our/your customer service representatives.

A recent survey conducted by Ray Morgan shows that 87% of members of mutual banking organisations were satisfied with the customer service they received. Private banks were not even close, with customer satisfaction results being, on average, some 15% lower than the mutuals. This study is not a one-off either; credit unions and building societies are regularly rated higher than the big banks for customer satisfaction.

Now that is something to be proud of.

Over the past couple of months and moving forward we are trying to get the message out about our great deals, structure and customer service. We think more of our fellow Australians should benefit from what we offer. Why should your friends stay in a relationship with a bank they aren’t happy with?

In our recent TV advert you may have heard that taking out a home loan with a mutual organisation will save you around $30,000 over the term of the loan(^). The big banks are understandably annoyed about us stating this fact. Sometimes the truth hurts. When the government went through a series of interest rate rises, some banks were quick to raise their own rates, and in some cases raised their rates above official levels. We took a different approach, keeping our rates low in an attempt to soften the blow of the additional costs the government was imposing on paying back a mortgage.

There’s research to back this up as well with 'the average standard variable rate of 17 banks being 37 basis points higher (7.36 per cent) than that of about 100 non-banks (6.99 per cent). Last September the gap was 26 basis points.'(*)

Putting our members first is what we are all about.

^ www.comesbacktoyou.com.au/back-to-you-tvc
* www.moneymanager.com.au/articles/2010/07/20/1279391932840.html

RBA holds rates steady

In a welcome move, the Board of the Reserve Bank of Australia today decided to leave the cash rate unchanged.

Despite mounting inflation pressure, the central bank's decision today to keep its key cash rate at 4.5% was widely expected and marks the second consecutive month of unchanged rates, as the RBA assesses the pace of the local and global economic recovery.

The following is a statement from Glenn Stevens, Governor of the RBA, explaining in further detail the interest rate decision:

"The global economy has continued to expand over recent months, consistent with a trend pace of growth. The expansion remains uneven, with the major advanced countries recording only modest growth overall, but growth in Asia and Latin America, to date, very strong. There are indications that growth in China is now starting to moderate to a more sustainable rate. In Europe, while output in some key countries has been improving recently, prospects for next year are more uncertain given the budgetary constraints governments face and the pressure on euro area banks. US growth has looked stronger in the first half of 2010 but the pace of labour market improvement is slow.

Caution in financial markets has been evident in the past couple of months, driven principally by concerns about European sovereigns and banks but also by some uncertainty about the pace of future global growth. Financial prices have been more volatile and equity prices and government bond yields in major countries have declined. Some tightness in funding markets is evident, though not on the scale seen in late 2008. Commodity prices are off their peaks but those most important for Australia remain at very high levels, and the terms of trade are approaching their peak of two years ago.

With the high level of the terms of trade expected to add to incomes and demand, output growth in Australia over the year ahead is likely to be about trend, even though the effects of earlier expansionary policy measures will be diminishing. Consumption spending is recording a modest increase at present, with households displaying a degree of caution, but most indicators suggest business investment will increase over the coming year. Business credit appears to have stabilised, though credit conditions for some sectors remain difficult. Credit outstanding for housing has continued to expand at a solid pace, but dwelling prices are rising more slowly than earlier in the year.

The labour market has continued to firm gradually, and after the significant decline last year, growth in wages has picked up a little, as had been expected. Underlying inflation appears likely to be in the upper half of the target zone over the next year. The rate of CPI increase is likely to be a little above 3 per cent in the near term, due to the effects of increases in tobacco taxes announced earlier in the year and significant increases in prices for utilities.

The current setting of monetary policy is resulting in interest rates to borrowers around their average levels of the past decade. Pending further information about international and local conditions for demand and prices, the Board views this setting of monetary policy as appropriate."

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