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Qudos Bank’s CEO has said the lender needed to proactively pursue a merger to sustain growth and keep delivering for its members, as the industry faces further consolidation.
Customer-owned lenders Bank Australia and Qudos Bank edged closer to a merger this week after receiving the regulatory green light from the Australian Prudential Regulation Authority (APRA) earlier this week.
While members still need to vote in favour of the merger, the lenders are moving forward with plans to form one of the country’s largest customer-owned banks, serving 300,000 members with total assets exceeding $17.5 billion.
As a finalised merger nears, Qudos Bank CEO Brendan Wright told The Adviser that it was the culmination of almost two years of planning.
“I’ve been in the role now [for] 19 months. The board, in looking for the CEO to take the organisation forward back then, had a clear mandate around growing the bank safely but also a proactive merger strategy. And the reason why is consolidation in the sector,” Wright said.
“It was about being proactive and on the front foot to find the right merger partner so we could continue to deliver to our members.”
When explaining why Qudos Bank chose Bank Australia, Wright said that complementary cultures that would benefit customers were crucial for both lenders.
“The key thing around any merger partner that we decided to go forward with [was] there had to be alignment around culture, purpose and values,” Wright said.
The two lenders both have deep ties to their member communities and uphold a strong commitment to customer ownership.
Bank Australia focuses its lending and investments on areas that “do good, not harm, for people and the planet” while Qudos Bank said it exists “for the benefit of our customers and the community, not for making profit for the benefit of shareholders.”
‘Best of both banks’
When discussing the key post-merger benefits for members, Wright told The Adviser that a “best of both banks” approach would give members access to the best products and services from both lenders from day one.
That could include cheaper fees, access to a wider range of mortgage brokers, and an increased branch network.
Bank Australia’s managing director Damien Walsh, who will lead the new organisation, has previously said the merger will increase the banks’ ability to invest in better products, services, and technology.
Wright would not rule out new products and services for the merged entity in the future but said it was focusing on meeting changing customer expectations for digital banking products.
“We need to continue to be able to compete with the bigger banks,” he said.
“So our members expect functional, effective apps and internet banking. And that’s what the scale enables us to continue to deliver, as well as keep their money safe and keep to the regulatory environment over the long run.”
Wright said that the merged group and the board “have plans” for new banking opportunities, including business banking, but had not yet made a commitment to anything.
More mutual mergers on the horizon
The Qudos Bank-Bank Australia merger is one of several mutual bank mergers in the past 12 months, with two having completed in the past year and another three in progress, including G&C Mutual Bank and Unity Bank, and Teachers Mutual Bank Limited and Australian Mutual Bank Limited.
APRA has said that mergers could be a possible solution to access advanced technologies and specialised expertise that would “otherwise be prohibitively expensive or too complex to develop internally”.
Commenting on future industry consolidation, Wright believes the trend will continue.
“Back in the early 2000s there were 200 odd customer owned banks or credit unions. Today there are 54,” he said.
“That’s been playing out because of the need for scale, not necessarily bigger. It’s about being better [and] pooling resources to continue to deliver to your members in the long run.
“And so this theme of consolidation will absolutely continue to play out.”
APRA has also recently said that some mutuals lack the skills to navigate a modern banking environment and need to continue to reduce strategic risks amid rising competition, the cost of new tech, changing customer behaviours, and the “war for talent”.
Speaking last week, APRA’s executive board member for banking, Therese McCarthy Hockey, said that the watchdog had observed that the boards of some mutuals “lack the necessary skills to guide their banks in a modern banking environment, in particular, technology skills”.
To combat this, the banking specialist said mutuals needed to focus on upskilling directors and bringing in “fresh talent”, potentially looking “beyond [the] bank’s traditional geographic or industry-based pool”.
Wright, who was at Hockey’s speech last week, agreed with her view and said that mutuals needed to adapt to keep growing amid rising competition.
“Her ask was: be aware of [intensifying competition], be prepared to adapt, and have the capability to continue to deliver in the long run. And that leads into the wider theme of consolidation that has been playing out and will continue to do so,” Wright said.
[Related: APRA gives Bank Australia-Qudos Bank merger the green light]
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