CUA impacted by lower volumes of new lending

Australian credit union CUA has announced a half-year Group Net Profit after Tax (NPAT) of $31.11 million, up 10.9 percent on its previous first-half result.

The result was underpinned by continued member growth, an increase in net interest income and a positive result for subsidiary CUA Health.

CUA Chief Executive officer Rob Goudswaard said the result reflected the benefits of CUA operating a diversified business in challenging market conditions.

He said the CUA Group result had been boosted by the performance of CUA Health, which contributed NPAT of $3.37 million for 1H.

This helped to offset a slightly weaker result for the banking business (ADI), which was impacted by aggressive market competition over the period and continued pressure on margins.

CUA issued $1.17 billion in new loans for the six months to 31 December 2016. While owner occupier and investor home loans accounted for around $1.06 billion of the new lending, CUA ’s personal loan performance was a standout with $106.4 million of personal loans issued over the period – a 30 per cent increase on personal loans issued over the corresponding period in FY16.

In particular, CUA ’s personal loan sales through the website and web-assisted channels were up 55 per cent on a year ago.

Mr Goudswaard said this came off the back of CUA significantly enhancing its digital marketing and sales capability, producing a 182 per cent year-on-year increase in digital leads.

Mr Goudswaard said net interest income of $118.6 million w as up 4.3 per cent on the same time a year earlier, reflecting higher interest revenue from strong lending in previous periods.

CUA had held its net interest margin steady against the same period last year, in what was a competitive and challenging external environment.

Capital adequacy, return on assets (ROA) and return on equity (ROE) declined slightly against the previous corresponding period.

However, 1H saw an improvement in CUA ’s cost to income ratio to 68.2 per cent (downfrom69.5 per cent in 1H-FY16).

This reflected CUA’s focus on balancing the slowdown in lending activity with prudent cost management, ensuring CUA can continue investing in future member improvements.

CUA ’s banking business (or ADI) posted a first-half NPAT of $29.69 million, down 3.8 per cent on the previous corresponding period.

The ADI result was impacted by lower volumes of new lending for the period in challenging market conditions, which included aggressive price-led competition across the market in the first few months of 1H.

However, CUA expects to see a return to stronger lending and asset growth in the second half.

CUA has continued to invest in the growth of its wholly-owned private health insurance subsidiary, with CUA one of the few organisations in Australia to offer integrated financial, health and insurance solutions.

The highlight for the fund during the period was the launch of a new suite of hospital and extras cover in November, which provides greater choice and flexibility for members based on their individual needs and budgets.

CUA Health posted a first-half NPAT of $3.37 million. CUA Health premium revenue for the six months was $72.1 million, while the insurer returned $61.9 million in benefits to policy holders.

Over the past year, policy holders received around 88 cents in the dollar in benefits, higher than the industry average of 86 cents.

Credicorp Insurance posted a half-year NPA T of $0.577 million, an increase of 20 per cent compared to the FY16 first-half result.

This subsidiary now provides general insurance to more than 13,500 members.

Credicorp’s growth during the period is a result of the maturing of its new product suite and continued effective cost management.

Mr Goudswaard said CUA had seen an increase in new lending and sales in recent months,
which should contribute to a positive second-half financial performance.

However he noted that CUA expected pressure on margins to continue for the remainder of FY17, given the current low interest rate environment and strong competition in both the home loans market and in attracting member deposits.

Financial performance in 2H would depend on careful management of margins and costs, as well as any interest rate movements throughout the period.

He said CUA had a number of priorities for 2017, including exploring further opportunities to collaborate with other mutuals and leverage their collective strength, following the formation of a new joint venture company, Mutual Marketplace, with People’s Choice Credit Union.

Mutual Marketplace will commence operations in April to provide procurement and accounts payable services to both organisations.

Mr Goudswaard said there would be a continued focus on CUA building its brand awareness in the marketplace, off the back of the high visibility gained through its three-year partnership with Queensland Cricket, including the Brisbane Heat BBL and WBBL teams.

CUA will also look to deepen member relationships and attract more new members, particularly through CUA’s competitive position as an early adopter status on digital wallets and payments technologies (ApplePay, AndroidPay and New Payments Platform).

“Today’s half-year result is a positive outcome for members, who are already seeing the benefits of our continuing investment in digital channels and member-facing improvements,” he said.

“CUA has rolled out Android Pay and ApplePay to our members, and we are one of only two financial institutions in Australia offering ApplePay for Master cardholders.

We’ve introduced the ability for people to open an Everyday transaction account and become a CUA member online in just minutes, making it easier than ever before to switch to CUA.

“We’re currently redesigning our mobile banking app, ahead of a launch later this year.

And we are committed to being one of the first financial institutions in Australia to deliver members the benefit of real-time payments using the New Payments Platform when it launches towards the end of 2017.

“We’re working on ways to make sure all our members are on the digital journey with CUA and are realising the benefits of CUA ’s move towards being available anywhere, anytime.

The number of members using mobile banking has increased by 22 per cent compared to a year ago, with more than 105,000 members logging in each month.

Across both mobile and online banking, we have over 175,000 active users.”

Mr Goudswaard said that as a member-owned organisation, CUA is also committed to giving back to its communities through social initiatives.

“We have significantly scaled up our volunteering activities, with our team devoting around 200 days to volunteering in the community during the past six months, significantly more than a year earlier.

“We awarded a total of $10,000 to community groups in Toowoomba in December, presented more than $70,000 to local schools in October-November, and we will shortly launch a reinvigorated new local community grants program through CUA branches.”

On the regulatory front, Mr Goudswaard said CUA will continue working with government and industry stakeholders to secure a competitive financial services landscape to benefit consumers.

“CUA is working with other mutuals and the Business Council of Cooperatives and Mutuals to further advance the case for government and regulators to consider additional capital raising options for mutuals.

Currently, mutuals like CUA are constrained in our ability to raise capital, particularly Tier 1 capital.

In the absence of this capital framework, we will also continue consulting with regulators and our members around a change to our Constitution that would enable CUA to raise capital in the future, so CUA can take advantage of any emerging opportunities.”