Canberra backs customer owned banks

Treasurer Scott Morrison has moved to help customer owned banks raise capital so they can compete on a level playing field with other lenders.

On Wednesday, the treasurer unveiled Canberra’s response to the Hammond Review which examined the mutual sector with a view to updating the law.

Greg Hammond’s recommendations include legislative and regulatory changes to improve access to capital, inserting the definition of a mutual company into the Corporations Act 2001 and changing tax laws to help mutuals raise capital.

Further, the treasurer has signalled that he will proceed with all the recommendations.

Until these changes are approved, co-operatives and mutuals cannot raise capital by issuing securities without risking the loss of their mutual status.

Once they pass, member-owned businesses will be more able to make strategic investments while ensuring there is sufficient liquidity to meet any short-term obligations.

Freeing up mutuals

According to Melina Morrison, head of the Business Council of Co-operatives and Mutuals, this is a game changer that will unshackle the sector and allow the flow of billions of dollars of previously untapped investment to flow to Australian-owned businesses.

She said the reforms would also have implications across the nation’s economy, given that co-ops and mutuals already make up more than 8 per cent of the nation’s GDP.

“At a time when revelations of global tax evasion are multiplying, today’s announcement by the Federal Treasurer will help Australians keep company profits onshore.

"The new law will allow capital to flow into sectors ranging from health insurance and aged care, right through to farming, and roadside assistance.

"Better yet, because customer-owned businesses redeploy surpluses to benefit members, not shareholders, any additional money is guaranteed to stay in Australia and boost the Australian economy,” Morrison added.

Fostering growth

Dominic Dunn, the acting head of COBA, was also quick to congratulate the Turnbull Government on the announcement.

“We particularly welcome measures to improve our sector’s capacity to raise capital.

“Greater capacity for customer owned banking institutions to raise capital will increase their potential to grow, take opportunities and invest in technology.

The acting lobby group head said COBA is keen to work with the government to implement the Hammond Review reform.

“COBA appreciates the positive engagement we have had in recent months with APRA on changes to the prudential regulatory framework to allow customer owned banking institutions to directly issue core equity tier one capital instruments.

"Customer owned banks, credit unions and building societies provide vital consumer choice and competition and these reforms will help us make an even bigger and better contribution,” said Dunn.

Strong signal

CUA chief Rob Goudswaard said the government has sent a strong signal that the mutual sector has an important role to play in financial services and that we should be better supported.

“Unlike listed companies, existing regulations do not enable mutuals to easily go out to market to raise tier one capital to fund things like improved member services or to take advantage of potential growth opportunities.

"At present, CUA funds these activities out of retained earnings which forces us to make choices which restrict our options.

The head of Australia's biggest credit union also claimed potential reforms to the tax laws, for example, could open up opportunities for many mutuals, including CUA, to use their franking credits for the first time.

"This would potentially deliver additional returns to members."

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