Voting begins for merger of Newcastle’s two biggest credit unions

Members of the Newcastle’s two biggest building societies have started voting on a potential merger.

The Newcastle Permanent Building Society headquarters.

Members of the two biggest financial institutions based in Newcastle, NSW, have started voting on a merger proposal that would make them one of the top two customer-owned banks in the country.

Newcastle Permanent Building Society and Greater Bank announced a merger last year and have now received regulatory approval from the Treasury, the Australian Prudential Regulation Authority, and the Australian Competition and Consumer Commission.

Customer-owned banks are merging to try to achieve economies of scale which help absorb increased regulatory costs, following the banking royal commission, as they compete with the big four banks.

Newcastle Permanent Building Society chairman Jeff Eather.

Newcastle Permanent chairman Jeff Eather said the two needed to combine to create a credible force against the power of the big banks.

“This is a scale deal based on growth,” said Mr Eather, adding that the two societies wanted to grow outside Australia’s sixth largest city.

“There is a necessity to grow outside of that.”

Customer-owned banks have a different business model to publicly traded banks because they do not pay dividends to shareholders and work to produce only enough profit to keep reinvesting in their business, such as technology upgrades.

This meant they were usually able to offer consistently better rates, Mr Eather said.

Greater Bank chief executive Scott Morgan.

He said anyone complaining about their big four bank not passing on interest rate rises through better rates on savings accounts should be “going customer-owned” instead.

“Customer-owned banks are not split between shareholder dividends and the benefit of customers,” he said.

As an example he pointed to Newcastle Permanent’s current rate for 12-month term deposits of 3.5 per cent and its variable loan rate of 3.99 per cent.

Three of Australia’s big four banks sign off on their full-year accounts on Friday and Bloomberg estimates the combined cash profits of Westpac, NAB and ANZ at almost $18.8bn, despite inflationary pressures.

The Commonwealth Bank has a June 30 year end and posted a cash profit of $9.6bn.

Last year, the big four posted combined annual profits of $26.8bn as the hot housing market more than offset margin pressure.

Voting on the merger between Newcastle Permanent and The Greater finishes on November 2. They will hold extraordinary general meetings giving their 600,000 members the final chance to have their say.

There is no money changing hands as part of the merger, which would result in the chair of The Greater become chair of the combined group and the chief executive of Newcastle Permanent become the CEO of the combined group.

Mr Eather said the deal would include a guarantee on redundancies for the first two years and there would not be any branch closures.

If approved, the combined entity would have $19.8bn in assets, making it a similar size to the other customer-owned merger currently in the works, between Heritage Bank and People’s Choice.

As it stands Great Southern Bank, based in Brisbane, is the largest.