Danny Pavisic, CEO, Unity Bank
Unity Bank’s exposures to a handful of property developers will be concentrating the minds of management and the board of the mutual bank.
The bank holds “three large exposures in the construction and building industries representing 20.5 per cent, 16.9 per cent and 12.6 per cent of tier one capital respectively,” the bank disclosed in its 2023 annual report.
Together, these loans total A$63.8 million and represent 50 per cent of tier one capital. They constitute an idiosyncratic approach to managing credit risk, especially for any mutual bank or credit union.
Unity Bank CEO Danny Pavisic defended this strategy (if not the specifics) in a media release to accompany the release of the bank’s annual report yesterday.
“The bank’s investment in business banking expertise is also paying off handsomely with a 31 per cent increase in the business loan portfolio, notably with no deterioration in credit quality,” Pavisic said.
The bank also has large exposures to pools of personal and business loans funded through Plenti RE and Shift Financial.
These two exposures total $9.4 million and $26.0 million, or 7.4 per cent and 20.4 per cent of tier one capital respectively.
For now, Unity Bank is travelling well, reporting a net profit of $11.0 million over the year to June 2023, up from $7.3 million in FY2022.
The bank’s return on assets was 0.95 per cent in FY2023, up from 0.62 per cent, while its cost to income ratio fell to 70.5 per cent from 78.6 per cent.
This is one of the best profits (on a return on assets basis) that Banking Day has reviewed in many years reporting on the mutual banking sector (albeit eclipsed this year by the results for Regional Australia Bank).
Unity’s return on equity was 8.3 per cent, more than respectable for a mutual ADI.
Receivables increased 11.5 per cent, or broadly twice system, to $1.2 billion.
Deposits increased modestly to $1.29 billion.
The bank’s net interest margin widened to 2.50 per cent from 2.44 per cent.
The bank said the ratio of loans 90 days or more in arrears was stable at 0.38 per cent.
Pavisic said the 2023 result “points to the bank’s traditional strength in developing strong relationships with industry partners and community groups.
“Growth has been robust reflecting the targeted approach taken to focusing on our key markets. Our core business of mortgages recorded portfolio growth well ahead of system, and putting us at the top end of the industry,” he said.
Unity’s growth plans in mortgages will be getting a leg up after being named recently as the second bank for the panel pushing Shared Equity Home Buyer Helper finance in NSW.
Unity Bank is working through a planned merger with G&C Mutual Bank, one that will produce a mutual bank with around $4 billion in assets once finalised in early 2025. This will propel the combined Unity and G&C into the top 10 mutual banks by asset size.
Members will be asked to vote on this merger at the AGM in late 2024.