Credit Unions Want Access to Super Funds Cash

Post by Sharat on August 10, 2009 · Under Business News, Super Funds, banking, home loans, mortgages · 1 Comment

An industry lobby comprising of more than 25 credit unions will meet with the Australian financial regulator APRA to try and win approval for a scheme that will enable them to obtain financing from a $1 billion liquidity fund financed by the super fund industry.

Credit unions are seeking an alternative financing source to that of deposits after the market for securitisation has all but evaporated, as they seek to increase their market share of mortgages, which currently stands at 7 per cent.

Banks have been able to tap wholesale credit markets through the use of the sovereign guarantee provided by the Federal Government; however credit unions have been unable to take advantage of that scheme because they are not large enough to obtain a credit rating.

Mark Genovese chief executive of the Maritime Mining Power Credit Union said he believes that when it comes to raising funding, size is all important.

“More than 90 per cent of all home loans are now written by the big four. The credit union industry wants to become second-tier players, but to do that we need to have access to an alternative source of funding.” Mr. Genovese said.

The industry lobby which includes Maritime, New England Credit Union, Victorian Teachers Credit Union, the Police Credit Union of NSW and Encompass in Sydney met with representatives from the Treasury and various other Government departments to discuss the proposal and argue the need for increased competition in the mortgage market.

The combined gross assets of the industry lobby comprise $10 billion, with the group recently having sent APRA a plan to establish a special purpose vehicle which would manage the funds.

Super funds and other investors, would have the opportunity to invest in a financial instrument with a high credit rating which could be included as part of their cash portfolio.

Credit ratings agencies would rate the instrument on the basis that the credit unions use their combined balance sheets as security, through a fixed and floating charge against their net assets.

The fund, which is to be called Credit Union Mutual Fund, would sell units which would bear interest and would be marketed to super funds. Credit unions would use the funds generated to provide mortgages to their members. It is believed that the instrument would be able to obtain an investment grade credit rating.

Mr. Genovese said he expected the liquidity fund to initially raise $1bn. Once investors became familiar with the concept, the scheme would then be made available to other credit unions and mutual building societies.

“The money in the special purpose vehicle would earn a return every quarter for the super funds. That money would come on to the balance sheets of the credit unions, who can use it to lend to their members. It gives credit unions the capacity to lend more, and members have a choice where they get their home loans,” Mr. Genovese said.

Brian Bennett, who has been running the 55-year-old Encompass Credit Union for four years, said the super funds that had been approached were interested in getting involved.

“Credit unions are a good alternative to the banks because they are mutual’s, and that means they are more personal and friendly, charge less in fees and are less risky because we didn’t get involved in commercial lending, toxic assets or commercial property or development.”

Currently in Australia, there are 126 building societies and credit unions which hold approximately $70 billion in assets, comprising 4.6 million members and accounting for 7 per cent of the mortgage market.

The Big Four lenders have increasingly put a stranglehold on rivals in the mortgage market, having doubled their market share from 45 per cent in 2007 to 90 per cent at the end of November last year.

The resulting lack of competition has meant that banks have regained pricing power over savings accounts, credit cards and most significantly mortgages. Credit unions’ strength is in the deposit market, where they capture 12 per cent of all deposits, putting them ahead of ANZ and NAB.

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