Misunderstood Mutuals

Mutuals are considered the least secure segment for retail deposits in Australia, despite the Federal Government guaranteeing deposits up to $1 million held by an Australian Deposit-taking Institution (ADI).

New research from CoreData reveals only 13.7% of respondents consider deposits held by mutuals (combined credit unions and building societies) to be ‘very secure’, while 13.9% consider mutual deposits to be ‘somewhat not secure’.

Foreign banks fare equally badly, with only 14.2% considering the sector ‘very secure’ and 16.7% considering the sector ‘somewhat not secure’ – despite the likes of RaboPlus (subsidiary of Dutch bank Rabobank) holding a AAA credit rating, the safest in the world, ahead of the AA rated big four Australian banks.

Perceived deposit security improves with brand awareness. Almost one quarter of respondents (22.8%) consider the Tier 2 Australian banks ‘very secure’, and only 5.9% consider them ‘somewhat not secure’.

The big four is where the faith lies, with half (49.5%) considering a deposit with these banks ‘very secure’ and only 4.5% considering deposits with the big four ‘somewhat not secure’.

It’s clear from these results that Australians have not understood the deposit guarantee, perceiving safety based on the size and awareness of a banking brand.

This is supported by almost one quarter (23.3%) of respondents having ‘no idea at all’ about the deposit guarantee and more than a third (36.6%) having ‘some idea’.

Only 23.3% ‘understand most of it’, with just 16.8% ‘fully understanding’ the guarantee.

The deposit guarantee was initiated to support competition in the Australian retail banking industry.

The idea was to prevent the exodus of retail deposits from smaller ADI’s, which have a heavy reliance on these deposits to fund lending books, as securitisation markets are difficult to access and wholesale funding costs are more expensive due to lower credit ratings.

To measure success is difficult, but these are the facts.

The big four banks hold 72.8% of retail deposits at the end of 2009, up from 72.1% in September 2008, the month before the three year deposit guarantee was announced.

Had the deposit guarantee not been in place, this may have been higher, but if any ADI outside of the big four wants to increase retail deposits, and they are desperate to, then they must boost awareness in the Australian public that they are equally safe.

To date, very few have attempted this.

*Data is from the February 2010 Cash Deposit Survey, sourced from CoreData’s Australian Cash Report Q1 2010.