Permanent building societies have been an integral part of the Australian financial market for almost one hundred and thirty years. Deposits have largely come from household savings, while loans have almost exclusively been for the financing of home mortgages. This industry study was initiated to determine the performance of the individual permanent building societies, to determine how the major environmental factors have affected, and how they are likely in future to affect permanent building societies, and to discuss future strategic alternatives and likely scenarios for permanent building societies in Queensland.
Information for this report was obtained from the annual reports of the permanent building societies, from discussions with representatives in the industry, from a questionnaire sent to all permanent building societies and from a literature survey including the Australian Bureau of Statistics.
The Northern and Suncorp Building Societies in general greatly outperformed the rest of the Queensland societies. The Heritage Building Society consistently performed poorly. Over the last five years, the Northern and Suncorp Building Societies had a superior compounded annual growth rate <)20%) based on assets, had the highest relative interest and investment income and increased relative dividend and interest payments the most. Suncorp gained market superiority over Metropolitan, while Northern doubled its market share.
Relative operating expenses show no correlation to performance. However, targeting the home loan market niche coupled with a high repayment does correlate with an overall higher performance. In general, there was a close relationship between interest income and interest payments.
The four major environmental factors (interest rates, technology, deregulation and Government regulation have had a profound interrelated influence on both the overall housing mortgage market and the individual market participants. Deregulation of the home loan interest rates disturbed the market equilibrium in favour of the savings banks; while deregulation, new technology and changing Government regulation have encouraged and enabled the permanent building societies to become quasi-banks.
Deregulation has been the major force to date which has initiated structural changes within building societies. Structural changes have included mergers and/or transformations into savings banks. In future, technology driven product differentiation is likely to play the most important role in influencing structural adjustments. In Queensland, likely scenarios include the amalgamation of the smaller permanent building societies and the transformation of Suncorp into a State bank.