David Heine, CEO, Regional Australia Bank
Reporting an 85 per cent rise in net profit to A$32.1 million and a return on assets of 1.01 per cent over the year to June 2023, Regional Australia Bank has set a new benchmark for the mutual banking sector.
Banking Day does not have all the data, but it seems fair to suggest this could be the best-ever profit (on an ROA basis) by any larger customer-owned bank, and definitely the best in the modern era.
The result is all the more remarkable given the bank’s decision to not pass through all of last year’s cycle of rising interest rates to borrowers, as well as surging costs it faced last year.
“It’s a good result. We’re very proud,” David Heine, CEO of RAB told Banking Day.
“I didn’t think we’d see a mutual ADI with an ROA above one per cent.
“In many ways it’s too strong, with room for us to reconsider investment in our operations” he said.
As, indeed, the bank has been doing. Total operating expenses were 23 per cent higher at $60.4 million in FY2023, with staff expenses up 24 per cent.
This cost blowout was no impediment to RAB reporting a cost-to-income ratio last year of 56.9 per cent, an exceptionally low ratio for any mutual bank.
“In a world where scale is very important and mutuals need to look after their members to the best extent … the interest rate cycle helped [and] our balance sheet was a factor,” Heine said.
But, he clarified: “This result is not taking advantage of our members.
“We retained 40 basis points this cycle - not just new business but the entire back book as well.”
With growth in receivables of around five per cent, Regional Australia Bank is growing around system on the asset side while growth in deposits was subdued.
“Deposit-side growth hasn’t been our primary focus,” Heine said.
“Growth on the asset side takes two forms; while outright balance sheet growth is an important metric for the organisation, so too is geographic reach.
“And those two over time will continue.”
One measure of the bank’s aspirations for geographic reach is that it is bucking the trend by opening new premises beyond its traditional footprint (and not closing any branches).
RAB opened a new outlet in Warners Bay in Newcastle recently, and in coming months will open a full branch in Wagga Wagga.
The second dimension to this theme is RAB’s appetite for mergers.
In July, the bank reached terms for a merger with Macquarie Credit Union in the NSW Central West, one of the smallest credit unions in Australia, a merger that would lift RAB’s total assets to around $3.4 billion.
“We see ourselves as an ideal merger partner for any regional mutual ADI that shares our vision,” Heine said.
A few weeks ago, S&P Global assigned a BBB long-term and A-2 short-term credit rating to Regional Australia Bank.
“We’re looking to take advantage of that sometime soon,” Heine said.