Although there are 126 credit unions and building societies in Australia, with assets of $70 billion, the four major banks have nearly pushed them from the mortgage market over the past two years. In 2007, the banks wrote 45% of Australia’s home loans, but in November 2008 that number had jumped to 90%, leaving merely a 7% share for credit unions.

This is despite the fact that credit unions are more local, generally offering more friendly and personalised service, and often with lower fees. Credit unions typically have stayed out of risky loans, such as commercial property or toxic assets, making them an attractive alternative to some banks.

The overriding reason for this meltdown in the credit unions’ mortgage market share appears to be a lack of liquidity. Due to their smaller size, credit unions are generally unable to access external sources of financing, limiting the amount of their loan portfolios to the amount available from members’ deposits, particularly since the credit market freeze has damaged the market for securitisation.

Now credit unions are pushing back.

Members of an industry association comprised of 25 credit unions are meeting with representatives of the Australian Prudential Regulation Authority (APRA). The credit unions are eyeing a liquidity fund operated by the superannuation fund industry, containing $1 billion, which could be accessed through a special purpose financial vehicle by the credit unions to bolster their funds available for home mortgage lending, allowing them to fight back against the market stranglehold the major banks have achieved.

The super fund managers have expressed interest in the scheme, which would create more competition in the mortgage market and give Australian homebuyers more of a choice in the loan products available.

Source: Money-AU