Credit unions ‘face less pressure’ than banks

S&P says credit unions will face less pressure on their lending books than their big bank rivals during the coronavirus pandemic.

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Australian credit unions will face less pressure on their lending books than their big bank rivals during the coronavirus pandemic, according to ratings agency S&P Global.

Credit unions and mutuals have a much higher proportion of their lending book exposed to mortgages which are expected to remain relatively resilient despite the sharp slowdown in the economy, S&P said. This will protect credit unions and mutuals from rising losses across small to mid-sized businesses.

S&P Global analyst Lisa Barrett, said that on average, 93 per cent of total lending from credit unions is attributed to home loan lending products.

“Mutual (banks) have very little exposure to small to medium businesses that have the potential to be severely impacted by the coronavirus outbreak and its containment measures,” Ms Barrett said. S&P forecasts credit unions will incur losses of around 35 basis points on their lending books, while regional and larger bank loan portfolios are likely to be hit with credit losses of around 85 basis points.

At the same time credit unions can built up capital buffers on their balance sheet as they under less pressure to pay dividends to member-owners. “The publicly listed major and regional banks pay out a great deal of profits via dividend distributions,” she said. “The fact that mutual (banks) are owned by their customers means they don’t need to pay dividends. How they do give back is through preferential pricing.”

Teachers Mutual Bank Limited chief executive, Steve James told the Australian, his credit union has needed to adapt to changing conditions caused by the pandemic, but remains dedicated in providing financial services to its core members, which include teachers, health and emergency services workers.