here&now

Savings & Loans Annual General Meeting next week

In case you missed the update with your statements or in the last edition of news&views, our quarterly member newsletter, the Savings & Loans Annual General Meeting is being held next week.

The AGM is a great example of what it means to be a credit union. All members are welcome to come and hear from the Chairperson and myself about the credit union’s performance and plans for the future.

As we’re based in Adelaide, the meeting is held at the Adelaide Town Hall and begins at 12.30 on 19 November.

If you can make it down to the AGM, I’d suggest you do. Neal Matotek, our CFO, and I will be also explaining to our members just how the current economic conditions are affecting Savings & Loans and what this means for our members.

A couple of people have asked why there’s no Election of Directors this year. We went through our usual process this year in calling for nominations for Board positions. However, because we received three nominations and there were three positions, we did not need to take that to a vote. The three nominations were from the three retiring Directors, all of whom met the rigorous criteria required to be the Director of a financial institution.

Greg

 

Changes to the guarantee

The Federal Government has announced changes to the deposit guarantee scheme brought in a couple of weeks ago. The biggest change to the program is the introduction of a fee to guarantee deposits of more than $1 million.

Most of our members won’t be affected by the change – we have a very small percentage of members with more than $1 million in savings – and the government will continue to guarantee all deposits up to $1 million free of charge. We’re currently going through the details of the changes to see what changes (if any) we’ll need to make.

The guarantee hasn’t changed anything in terms of the way Savings & Loans does business and we’re just as safe and secure as always have been. It’s important to remember that as a credit union, we have the same level of oversight and regulation as the big banks.

If you have any questions about how this might impact you, please let me know.

Neal

Government’s deposit guarantee adds extra layer

Sunday’s announcement of a deposit guarantee scheme from the Federal Government is good news for the Australian financial sector. The new arrangement will add another layer of security to our already strong and stable financial services sector.

I don’t think this new scheme will ever need to be used in Australia and it was really done to match similar moves around the globe. Our industry regulator, the Australian Prudential Regulation Authority (APRA), is constantly monitoring all financial institutions to make sure we have adequate levels of capital. This is one of the reasons Australia’s banking system is among the safest in the world.

Credit unions like Savings & Loans have traditionally been seen as relatively conservative organisations, which means that growing for the sake of it just hasn’t been our way of doing business. As I’ve mentioned before, we’ve never had any sub-prime loans and pride ourselves on our responsible lending practices. It seems that this attitude to business and our members is paying off in the current situation.

So now your savings aren’t just backed by our stability and member focus, but also a Federal Government guarantee. We want to make sure our members are kept informed about what’s happening at the moment, so if you have any questions then send them through. Either myself or our Greg will get an answer to you.

On another note, I’ve see that the Prime Minister has announced an increase in the First Home Owner Grant to up to $21,000 if you’re building a new house. I haven’t had a chance to look at the details yet, but on the surface it looks like good news for people tyring to break into the property market.

Neal Matotek

Tough times in the United States, but what about Australia?

With all that’s been happening in US finance markets, I've asked our Chief Financial Officer (CFO) Neal Matotek to put together some details about the current market conditions and what it means for Savings & Loans and our members. Here's what he's got to say. Greg.

Look at any newspaper, television or news website over the last week and you’re sure to see something about the US financial crisis. It’s not surprising given the importance of the US economy to the rest of the world.

It was about a year ago when the trouble all started, with the onset of the global credit crunch. This was triggered by the sub-prime crisis, which refers to a type of loan where money was lent to borrowers who could least afford it. When borrowers started defaulting on loans, mortgage lenders started to go out of business.

After a period where things appeared to stabilise, the impacts of the credit crunch reared its head again in July when Fannie May and Freddie Mac, the two biggest mortgage companies in the US (they own or guarantee more than 40 percent of loans in the US), had to be bailed out by the US Federal Reserve.

Now the fallout continues. In the last week, we’ve seen the collapse of investment bank Lehman Brothers, and the rescue of another investment bank, Merrill Lynch as well as insurance giant, American Insurance Group (AIG). Now two of the United Kingdom’s largest banks, Lloyds and HBOS, are close to merging to shore up that country’s banking sector.

I’m watching these developments with great interest. The obvious question for every Australian is ‘how is this going to impact on my money?’ And the broader question for me is ‘how is this going to impact on Savings & Loans?’

Firstly, I feel pretty confident in saying Australia’s financial services industry is one of the most heavily regulated in the world, so the chance of this crisis leading to a disaster here is extremely low. This view has been echoed by the Reserve Bank and Federal Government.

Obviously, Australia has felt some impacts. That’s inevitable when we live in such a global and connected world. For most Australian financial institutions, the major impact has been the increased costs for securitised funding.

Speaking from a Savings & Loans point of view, we don’t have sub-prime lending and have never engaged in this type of lending. We also don’t have a heavy reliance on securitisation to fund our loans, rather we have a strong deposit base to draw on which we use to fund a large percentage of our mortgage business.

Most importantly, we don’t have overseas investments. Most of our assets are invested in mortgage secured loans, personal loans and deposits with Australian financial institutions.

As I said above, the biggest impact from the credit crunch for us has been that the small percentage of loans we fund through securitisation (about 20 per cent), has become more expensive. This simply means that our margins on these loans have reduced slightly.

If you have any questions or comments on this issue, send them through and I can certainly have a look at them and provide a response for you.

Neal Matotek

Savings & Loans strong and set for the future

Today we announced our financial figures for the end of the 2007/08. As regular readers would know, it’s been a turbulent year in financial circles and Savings & Loans has faced some big challenges as our costs have increased and margins shrunk.

We recorded a profit of $10.9 million during the year, which is lower than the record $15.82 million we set last year, but still a good result. Importantly, we passed $3 billion in assets for the first time and set ourselves up for a strong future.

Remember that, like any credit union, our profits are invested back into our reserves rather than being paid out as dividends. These reserves are use to open new branches and expand the services we offer people, such as SMS Banking and Internet Banking.

We had a few big projects that came to a head this year, including the launch of a new brand and logo and the opening of seven new branches. These developments were planned for ahead of time and actually came in under our budgeted predictions.

These projects will pay dividends in the years to come as we open our doors to more members in different parts of Australia and our branding helps us stand out in the marketplace.

Profit is lower than previous years because our external costs – particularly the cost of us borrowing funds to then lend on to members – has increased. At the same time, profit is only around 13 per cent lower than we originally budgeted for, which I think says a lot about the way we’ve handled the twists and turns of the year.

It’s important to keep in mind that we don’t exist to make profits; we exist to deliver great service, value and products to our members. As costs went up during the year we kept rates and fees as low as we could, which is a good indication of the member focus we have.

Greg