Effective consolidation in the community banking sector

Australia has a large and diverse community banking sector. In recent years the community-owned banking sector has faced an increasingly competitive and complex environment placing pressure on their performance.

It supports approximately four million customers serviced by 61 credit unions, three building societies, 15 mutual banks and 13 friendly societies^[1]. They are defined by their purpose, which is to deliver value to members. This ethos is often seen reflected in their commitment to local communities, lower and fairer fees and competitive mortgage rates.

Many credit unions are under pressure

In recent years the community-owned banking sector has faced an increasingly competitive and complex environment placing pressure on their performance. These conditions have been amplified by:

• Low interest rates – Interest rates are at record lows and expected to remain low in the medium term.
• Regulatory burden – The requirements of regulators are high and increasing.
• An ageing membership base – Members are ageing which creates an imbalance in deposits versus lending.
• Digital service provision – Members – particularly younger members – are seeking more digitally integrated products and services, which requires substantial investment to deliver. Across the sector exponential technology trends are driving a paradigm shift in product and service delivery.
• New entrants – The market is highly competitive. This is intensifying, with new market entrants disrupting the incumbents through new digital business models.

These conditions are challenging the industry to consolidate

These conditions are making it difficult for many credit unions to deliver on their purpose and grow their member base. As a result, many credit unions are looking to increase their scale to deliver greater value to members. More opportunistic credit unions recognise that this is the ideal time to take advantage of merger opportunities. A successful merger with a compatible business can increase scale, unlock capital to invest in new technologies and lay the foundations for sustainable growth.

A successful merger requires deep expertise, artful engagement and a robust toolkit

Mergers are notoriously difficult and complex activities. Nous understands that a successful merger requires careful integration of:

• Distinct membership groups – often defined by geographies or industries
• Governance arrangements
• Products and services
• Processes and systems including core banking infrastructure
• People, cultures, aspirations and member experiences.

Nous has a proven M&A approach and toolkit to help community owned banks assess, prepare, negotiate, integrate and evaluate their merger activity

At the assess stage we help clients identify and approach the right merger partner with a common perspective and common approach to members. We develop fit for purpose selection criteria and help clients work through effective approach tactics.

At the prepare stage we bring together Boards and Executive teams to agree what could work – always ensuring member value is front of mind. We look at the financial and legal aspects of the deal and think carefully about people, culture and member challenges. In a complex deal there is a lot to consider. We guide you through the critical components of the deal to focus on what matters most.

At the negotiate stage we build mutual trust in the partnership while working through due diligence and other negotiations. We work hard to build relationships and mutual trust as this is the foundation of an effective long-term partnership.

During integration we help you manage difficult sequencing issues, and monitor progress to ensure benefits are realised. We artfully navigate the people side of the change effort as this is a signature Nous strength.

When it comes to evaluation, benefits and success criteria should be set up as part of the initial business case. We create tailored benefit realisation frameworks and data collection methods to track performance against these. In addition to financial benefits, success criteria should include acquisition and retention of members, integration cost, and retention of essential talent.

If you are considering merger opportunities, Nous is your ideal consulting partner

Our team includes leading experts in financial services, community banking, mergers & acquisitions, and large scale transformation. Many of our Principals have held senior roles in banking and finance organisations and can offer an experienced perspective on the challenges you face.

M&A in the community banking sector from Nous Group on Vimeo.