RBR 17/01 The Emergence of Community Style Banking as a Response to the Closing of Bank Branches
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RBR 17/01 The Emergence of Community Style
Banking as a Response to the Closing
of Bank Branches
Bank closures across Australia have affected both rural
and urban areas. Outer metropolitan areas in cities such
as Melbourne, Sydney and Brisbane have been caught up
in branch rationalisation just as rural areas are and, with
60% of branches being located in metropolitan areas, the
trend is expected to continue for the foreseeable future.
However, there is no doubt that branch closures in small
towns negatively affect the population to a much higher
degree than closures in more highly populated urban
areas. With Queensland suffering its fair share of branch
closures, the concept of community banking is starting to
emerge as a realistic option. This Brief discusses
alternative forms of banking such as the service offered by
credit unions and community banks. Examples of where
this has happened in Queensland are provided.
Wayne Jarred
Research Brief 17/01
June 2001© Queensland Parliamentary Library, 2001 ISSN 1443-7902 ISBN 0 7242 7922 9 Copyright protects this publication. Except for purposes permitted by the Copyright Act 1968, reproduction by whatever means is prohibited, other than by Members of the Queensland Parliament in the course of their official duties, without the prior written permission of the Parliamentary Librarian, Queensland Parliamentary Library. Inquiries should be addressed to: Director, Research Publications & Resources Queensland Parliamentary Library Parliament House George Street, Brisbane QLD 4000 Director: Ms Mary Seefried. (Tel: 07 3406 7116) Information about Research Publications can be found on the Internet at: Http://www.parliament.qld.gov.au/parlib/research/index.htm
CONTENTS
1 INTRODUCTION ............................................................................................ 1
2 THE CONSEQUENCES OF BRANCH CLOSURES .................................. 2
3 THE 1999 HOUSE OF REPRESENTATIVES REPORT ON REGIONAL
BANKING SERVICES........................................................................................... 3
4 POSSIBLE ALTERNATIVE FORMS OF BANKING SERVICES ........... 5
4.1 CREDIT UNIONS AND BUILDING SOCIETIES...................................................... 6
4.1.1 Credit unions ......................................................................................... 6
4.1.2 Building societies ................................................................................ 10
4.2 COMMUNITY BANKS .................................................................................... 11
4.2.1 Bendigo Bank’s Community Bank branches ...................................... 11
4.2.2 Elders Rural Bank ............................................................................... 13
4.2.3 Non financial institutions .................................................................... 14
5 THE PROCESS OF FILLING THE VOID ................................................. 14
6 CONCLUSION ............................................................................................... 16
APPENDIX……………………………………………………………………….201 INTRODUCTION
Bank branch closures across Australia have been on the increase for some time. Between 1993 and
1996 approximately 14% of non-metropolitan major bank branches were closed.1 The actual number
of branches fell from 7,064 in 1993 to 5,385 in 1999.2 The continuation of this trend is inevitable as
Australian banks follow the world-wide trend of lowering their operational costs wherever possible.
The 1997 Wallis Inquiry pointed to Australia’s major banks operating a network of 3.8 branches per
10,000 inhabitants which was below the level of some European countries such as Germany, France,
Spain, Switzerland, Netherlands, Finland and Italy, but higher than the United Kingdom and the
United States.3
There has been much criticism of sudden branch closures with some closing within 2 to 3 weeks of
announcement.4 There are proposed changes to the Banking Industry’s Code of Banking Practice to
the effect that banks considering branch closures will be expected to consult with the community
concerned.5 This comes in the wake of a recommendation of the House of Representatives 1999
Inquiry into Regional Banking Services that the industry adopt a branch closure protocol.6 The
current Code of Banking Practice developed in November 1993 does not contain any provision for
community consultation or any period of notice regarding branch closures.7
In Queensland, a study was completed on behalf of the Department of State Development for the
purpose of identifying communities that may be suitable sites for the opening of community banking
facilities. This study reported:
1
Diana Beal and Deborah Ralston, ‘Redistributing Financial Services: Impact of Bank Branch Closures on Rural
Communities’, Queensland Economic Forecasts & Business Review, 6(2), October 1997, pp 56-73, p 56.
2
Di Thomson and Malcolm Abbott, ‘Community Banking in Australia’, Agenda, 7(3), 2000, pp 207-217, p 209.
3
Commonwealth of Australia, Chairman Stan Wallis Financial System Inquiry, Final Report, March 1997, pp 207-
208.
4
Greg Walker, Finance Industry Restructuring: Implications for Regional Australia, Paper presented to CAFI
Workshop Brisbane, 12 November 1998, p 6.
http://www.usq.edu.au/cafi/confpapers/greg.PDF Down loaded 17 May 2001.
5
Jim Dickins, ‘Bank closures under notice’, Courier Mail, 16 March 2001, p 1.
6
Australia. House of Representatives Standing Committee on Economics, Finance and Public Administration,
Chairman David Hawker MP, Regional Banking Services: Money too far away, March 1999, Recommendation 20, p
xvii and 95.
7
Australian Bankers’ Association, Code of Banking Practice,
http://www.bankers.asn.au/3_level/bankcode.htm Down loaded 21 May 2001.… there is still a strong demand for face-to-face banking, and in recognition of this financial institutions
are currently experimenting with solutions aimed at providing cost effective face-to-face services in
rural communities. These solutions include credit unions, community banking, franchising branches,
third-party agreements, and the use of central shared facilities to reduce establishment costs.8
2 THE CONSEQUENCES OF BRANCH CLOSURES
Banking is an essential aspect of modern day life both for the individual and business. The general
consensus is that branch closures damage businesses in small towns way beyond the point of the
closure itself. If bank clients have to travel to other towns to conduct their banking business, they
will tend to do their shopping there as well. This can then lead to the loss of employment in the town
that has lost the branch which only results in a further decline in the economic fortunes of the town.
Branch closures have imposed inconvenience and cost to individuals, businesses and the community
generally. Individuals and businesses are forced to seek financial services from other centres.
Cumulatively, there are negative effects manifested at the community level where there is a decline in
economic viability.
Whilst electronic banking services such as ATMs, electronic funds transfer at point of sale
(EFTPOS), telephone banking and Internet banking can, and do, overcome some access problems
there is still the problem of confidence and capital formation. There is also a lack of popularity with
electronic transactions in all its forms among the elderly in the community.9
There is no doubting that the social and economic costs of bank closures has been more pronounced
in rural communities.10 Historically, the closure of bank branches in rural towns has been a reflection
of the changes in economic fortunes and population trends.11 Rural areas have been hard hit with
population decline at the very time institutional globalisation has coincided with new developments
in communication technology and bank branch rationalisation. It has been suggested that New South
Wales has suffered more than Queensland with the loss of banking services in rural areas.12
8
University of Southern Queensland. Centre for Australian Financial Institutions. Community Banking-Site
Identification Final Report. 21 June 1999, p 5.
9
Centre for Australian Financial Institutions, p 5.
10
Centre for Australian Financial Institutions, p 5.
11
Deborah Ralston and Diana Beal, ‘Rural Communities: Adjusting to a Future without Bank Branches’, Economic
Papers, 19(4), December 2000, pp 79-95, p 80.
12
Centre for Australian Financial Institutions, p 4.Sixty-three percent of bank branch closures have occurred in towns with a population of less than
1,000 whilst a further 17% were lost to towns with a population of between 1,000 and 1,500.13
Towns with population less than 600 have been virtually left with nothing more than Australia Post
as an agency of the Commonwealth Bank where only pass-book services are available. The
installation of ATM has not been extended (to any large extent) into rural areas because of the costs
associated with frequent servicing.14
However, the Australian Bankers’ Association has pointed to a study conducted on behalf of the
Association where the effects of bank branch closures on four rural towns in New South Wales and
the two rural towns of Jandowae and Wandoan in Queensland were studied. The study concluded
that the negative impacts were not as great as had been expected.15
A summary of the report concluded that:
• The initial impact of branch closures was significant to the economy. Positive changes between
1996 and 1999 have been greater access to self-service delivery methods and the entry of credit
unions as an alternate source of face-to-face banking.
• Since the closure of the bank branches and the introduction of self-service delivery methods such
as phone and Internet banking and the entry of credit unions to three of the sample towns, the
adverse affects have been softened.
• New loans taken out by members of the local community after the bank closures suggested that
confidence in the ability of the towns to survive had risen.
• Where there was a strong recognition of a need to support local commercial activities, the
townspeople tended not to travel to other centres to conduct banking and shopping.16
3 THE 1999 HOUSE OF REPRESENTATIVES REPORT ON REGIONAL
BANKING SERVICES
In October 1997 the Federal Treasurer announced the government’s intention to refer to the House of
Representatives Standing Committee on Economics, Finance and Public Administration the question
of regional banking services. Generally, the Standing Committee was asked to examine the
13
Australia. House of Representatives Standing Committee on Economics, Finance and Public Administration, March
1999, p 12, Figure 2.1
14
Ralston and Beal, 2000, p 81.
15
Australian Bankers’ Association, ‘Bankers Pleased, But Cautious, With Rural Study,’ Media Release 04/99.
http://www.bankers.asn.au/mr_0499.htm Down loaded 17 May 2001.
16
Ralston and Beal, 2000, p 93.plausibility of providing alternate banking services to remote, rural and regional areas in ways not
covered by traditional bank branches.17
In relation to branch closures, the Standing Committee put forward a number of recommendations:
• That the Code of Banking Practice be amended to require banks to give customers two months
written notice before transferring accounts between branches without the permission of the
customer. (Recommendation No 3)
• That the federal government ensure that the Rural Transaction Centres Program be coordinated
with State government initiatives in setting up service centres to deliver financial services to
regional areas. (Recommendation No 7)
• That the federal government ensures that the giroPost service offered by Australia Post be
expanded to include business banking services. (Recommendation No 8)
• That the Australian Bankers’ Association discuss with the Australian Local Government
Association about the feasibility of placing ATMs in Council offices or similar locations.
(Recommendation No 12)
• That the Regional Telecommunications Infrastructure Fund Board be asked to consider Internet
banking prospects when assessing funding for projects. (Recommendation No 14)
• That the federal government contract Australia Post to deliver cash to rural areas where Australia
Post has a presence but where there is no financial institution. (Recommendation No 16)
• That banks waive penalties and fees incurred in early loan repayments or the closing of accounts
resulting from branch closures and that State governments provide stamp duty exemptions on
mortgages transferred to another bank as a consequence of a branch closure. (Recommendation
Nos 17 & 18)
• That the Australian Bankers’ Association develop a minimum standard of service delivery as a
guideline for banks that are closing remote, rural and regional branches. (Recommendation No
19)
• That the banking industry adopt a branch closure protocol which includes:
• Three months notice to customers and community organisations on planned closures.
• Consultation with local communities over the numerous issues involved in branch closures.
• Two months written notice to customers when transferring accounts to another branch.
• That an over the counter service be maintained to allow cash deposits and withdrawals in
some form in areas where branch closures have occurred.
17
Australia. House of Representatives Standing Committee on Economics, Finance and Public Administration, March
1999, p 1.• That banks involved in branch closures educate and train customers and the community in
alternate forms of banking. (Recommendation No 20)18
The giroPost concept which is a fee for service operated by Australia Post offers some banking
services to members of financial institutions that are connected to the system. The system is
available in 2,822 Post Offices across Australia. The number of financial institutions that have
connected to the giro system stands at 52.19 The Commonwealth Bank is the only major bank that is
connected to the giroPost scheme. A representative of Westpac told the House of Representatives
Standing Committee hearing that Westpac is reluctant to enter the scheme as it would operate in
competition to its established branches and that such a move would only make branch economies or
town service economies even worse for Westpac.20
4 POSSIBLE ALTERNATIVE FORMS OF BANKING SERVICES
Rural communities have in the past looked toward credit unions and building societies for the
provision of some of their financial service needs.21 Whilst credit unions have increased their
presence and exposure in rural areas, and building societies have done so in regional areas, there are
other alternate avenues such as community banking, franchised branches, third party agreements and
the use of shared facilities.22
Bank deregulation has contributed toward the rationalisation of branch networks by the major banks
in order to ward off the threat of further low cost entrants into the retail financial market.23 However,
despite the dominance of the retail financial sector by the four major banks (Westpac, ANZ, National
Australia, and Commonwealth), there have been other important players in the market such as
building societies and credit unions.
18
Australia. House of Representatives Standing Committee on Economics, Finance and Public Administration, March
1999, pp xv to xviii.
19
‘Australia Post Retail’, http://australiapost.org/annualreport2000/business/retail_services.htm Down loaded 21 June
2001.
20
Australia. House of Representatives Standing Committee on Economics, Finance and Public Administration, 1999, p
55.
21
Ralston and Beal, 2000, p 80.
22
Centre for Australian Financial Institutions, June 1999, p 5.
23
Thomson and Abbott, 2000, p 207.4.1 CREDIT UNIONS AND BUILDING SOCIETIES
Credit unions and building societies are part of a category referred to as mutual organisations. The
underlying philosophy is that mutual organisations assist their members minus any self-profit motive.
However, despite their underlying mutual ownership structure, modern day credit unions and building
societies are virtually indistinguishable from banks owned by private shareholders.24
Since the deregulation of the banking system in the early 1980s, the impact of credit unions and
building societies has declined but this has largely been due to the conversion of a number of large
building societies to bank status.25
The Wallis Report into the Australian financial system recognised that credit unions and building
societies have in the past been innovative in the provision of financial services and increased choice
for the consumer and that they would continue to do this into the future.
4.1.1 Credit unions
The 1999 House of Representatives Inquiry into regional banking reported that the establishment of
credit unions has been one of the most successful institutional alternatives when bank closures
occur.26 Under the Commonwealth’s former CreditCare program there were 52 credit union branches
that commenced operation in locations where bank branches had closed.27
Credit unions (or credit cooperatives as they are sometimes known) have only developed since the
end of World War II. Credit unions were initially managed under a mutual form of ownership. In the
1970s there were 700 credit unions in Australia but by 1998 they had fallen in number to 245 with
many merges taking place. However, with over 3 million members nationally, credit unions
represent the only remaining significant deposit-taking institution operating under mutual status
accounting for 4.4% of deposits28 and they are expected to retain their mutual status for the
foreseeable future.29
24
DI Thompson and Malcolm Abbott, ‘Is there a Future for Mutual Deposit Taking Institutions in Australia’, Economic
Papers, 18(2), June 1999, pp 1-18, pp 2-3.
25
Thompson and Abbott, 1999, p 3.
26
Australia. House of Representatives Standing Committee on Economics, Finance and Public Administration, 1999, p
33
27
Centre for Australian Financial Institutions, June 1999, p 5.
28
Thomson and Abbott, 2000, p 208.
29
Thomson and Abbott, 1999, p 5.In the past, credit unions enjoyed tax-free status which enabled them to conduct business under lower
margins, provide a higher deposit rate or charge a lower loan rate. However, this tax-free status has
been lost since the early 1990s with the larger credit unions now being full tax-paying deposit taking
institutions.30
There is evidence to suggest that the common bond membership of credit unions has led to a
reduction in the cost of gathering credit information and a reduction in the likelihood of bad debt
losses. This was reported as being the case in the United States of America and England where
defaults on loans to members has been recorded as being lower than with banks.31 The mutual status
of credit unions has led them to being ideally suited to assisting communities in finding alternate
financial service providers.32
Credit unions have a reputation for being stable and long-lasting. Their success has been attributed to
a strong internal culture and a strong commitment to non-financial values.33 Credit unions pride
themselves as being closer to the customer which appears to show up in the percentage of new
membership that originates from referrals from existing members.34 This approach appears to be
standing the credit union sector in good stead. It has been predicted that the financial services
industry will further fragment into generic providers and niche markets.35
Credit unions provide a financial service in a niche market. The viability of that sector of the
financial services industry is shown in the Australia-wide data as of June 1999 where $16.7 billion
was being held in deposits, ($16.4 billion of which was in outstanding loans) for 3.5 million
membership.36 This 3.5 million membership level is high compared with the 700 credit unions in
England that cater for 260,000 members.37
The service that credit unions offer has been described in the following way:
Credit unions operate on a cooperative basis and have maintained their key principle of mutuality.
Capital is usually in the form of reserves, which are accumulated and held perpetually for the benefit of
30
Thomson and Abbott, 1999, p 6.
31
Thomson and Abbott, 1999, p 8.
32
Deborah Ralston and Diana J Beal, ‘Credit Unions: Filling Finance Gaps in Rural Communities’, Economic Analysis
and Policy, 29(2), September 1999, pp 173-185, p 173.
33
David James, ‘The will to be successful to the core’, Business Review Weekly, 21(38), 1 October 1999, pp 66-67, p
66.
34
David James, p 67.
35
David James, p 66.
36
‘Credit unions respond to changing marketplace’, Australian Banking and Finance, 8(18), 15 October 1999, p 17.
37
‘Appeal to Treasury to rescue credit unions’, Financial Times, 4 May 2001, p 5.current and future members. While credit unions have traditionally had a limited product range based
around low-cost personal loans, in an increasingly competitive deregulated environment they have
expanded into other forms of lending, most notably home loans and to a lesser extent revolving credit
and business lending.38
The first Automatic Transaction Machine (ATM) in Australia was installed by a credit union in 1977.
Credit unions now have the 5th largest ATM network across the country.39 In 1983 credit unions were
the first financial institutions in Australia to issue debit cards to their members that were linked to the
member’s account.40 In contemporary times, the expansion of a unified e-commerce credit union
network has been earmarked as a priority.41
A recent survey of the satisfaction rates of customers of retail banks and credit unions indicated that
credit union members were far more satisfied (84%) with the level of service provided than
customers of banks (64%) were.42
The Herberton and Dirranbandi experience
In December 1996, a bank branch closed in Herberton and a credit union branch filled the void.
Herberton is a small town of approximately 1,000 residents located near the larger centre of Atherton.
Herberton Shire Council had been given 6 weeks notice of the branch closure. This period of notice
allowed a credit union branch to commence trading just days before the bank branch closed.
The credit union required premises rent-free to provide particular services one day a week. This was
found in a refurbished building that was being used for the Queensland Government Agents Program.
The credit union’s head office is in Sydney and it supports another branch in the town of Dirranbandi
which it opened in November 1997. Dirranbandi had not experienced such a service for about 10
years. (The credit union branch in Dirranbandi also operates the one-stop shop initiative of the
Queensland government on behalf of the Office of Rural Communities.)43
The Queensland Government Agents Program is a network of one-stop shops that deliver a range of
government services and information to rural communities. Whilst the Office of Rural Communities
is responsible for administering the program, it does not operate the one-stop centres itself. It enters
38
Ralston and Beal, 1999, p 174.
39
‘Credit unions claim fifth biggest network’, Australian Banking and Finance, 9(13), 31 July 2000, p 15.
40
‘Credit union members take to Visa’, Australian Banking and Finance, 8(20), 11 November 1999, p 13.
41
‘Credit union gear up for an e-attack’, Australian Banking and Finance, 10(15), 31 March 2001, p 18.
42
‘Credit unions on top in keeping customers happy’, Australian Banking and Finance, 9(15), 31 March, 2000, p 13.
43
Australia, House of Representatives Standing Committee on Financial Institutions and Public Administration,
Regional Banking Services, Transcript of Hearing held at Herberton Tuesday 28 July 1998.
http://www.aph.gov.au/hansard/reps/commttee/r1950.pdf Down loaded 21 May 2001, pp 728-738.into agreements with government departments and local authorities to provide the range of services
and information. The one-stop shop at Herberton is operated on behalf of the Office of Rural
Communities by the Department of Public Works and Housing with the credit union being a tenant in
the building.44
Evidence was given at the House of Representatives hearing that credit unions opening up offices in
rural or isolated areas are achieving a market penetration of approximately 40% within the local
community. This level of penetration is regarded as being quite satisfactory.45
The opening of a credit union on Magnetic Island
Magnetic Island, situated off the coast from Townsville and approximately half an hour boat trip
from that centre, has 300 households and is a popular holiday and retirement location for people from
other centres. The only bank branch providing face to face services on the island closed in March
1997. The island was left without a personal banking service for approximately 6 months before a
credit union branch began operation. The island is a popular holiday and retirement location for
people from other centres.
A survey was conducted as part of the Commonwealth’s CreditCare program of three New South
Wales rural towns and one Queensland location (Magnetic Island). The survey aimed to ascertain the
success of replacement banking services in areas that had lost their last remaining banking service.
Of the respondents surveyed, the credit union on Magnetic Island has a penetration rate of 74%. This
was attributed to the difficulty of access to the mainland where the nearest banking services are to be
found. This 74% penetration includes 63% of business operations located on the island.46 Over half
of the Magnetic Island business respondents were classed as low cash handling businesses. Ten
percent of the business respondents on Magnetic Island stated that the opening of the credit union
increased the efficiency of their business and saved time.47 Magnetic Island respondents also
indicated a high level of confidence in the future of their community after the opening of the credit
union.48
The researchers who conducted the survey concluded that credit unions tend to adequately service the
needs of the communities within which they are established. Once a credit union commences
operation, community members are quick to take advantage of the transaction services provided with
44
Australia, House of Representatives Standing Committee on Financial Institutions and Public Administration,
Transcript of Hearings held at Herberton Tuesday 28 July 1998, p 738.
45
Australia, House of Representatives Standing Committee, Transcripts of Hearings, p 746.
46
Ralston and Beal, 1999, p 177.
47
Ralston and Beal, 1999, p 181.
48
Ralston and Beal, 1999, p 183.the result that money tends to circulate and stay in the community. Lending is essential to any
financial institution and there appears to be a slower uptake on the level of loans taken out with credit
unions when they open new branches than is the case with banks.49 Provided this is only true of the
short-term, long-term viability will be achieved.
4.1.2 Building societies
The Australian Association of Permanent Building Societies markets its sector of the industry as the
real alternative to banks. As with credit unions, building societies have opened up branches in rural
communities from which other financial service providers such as banks have exited or never
entered.
Establishment of a building society branch at Crows Nest
The ANZ branch in Crows Nest closed in 1997. To allow a branch of the Heritage Building Society
to be established in Crows Nest, the community of just over 1,000 residents committed $60,000.
This amount is held by the building society as a term deposit. Contributors to this amount are limited
to a maximum of $5,000 each and are paid interest at the term deposit rate. The $60,000 is regarded
as an amount to underwrite any shortfall that occurs in the first 2 years. The community and Heritage
Building Society equally share the branch revenue with the community paying the operating costs
from its half. Community profits are expected to be spent on future projects that will engender
further economic growth in the town.50
The building society branch was opened on 9 May 2000 and is located in premises partially funded
under the Commonwealth’s Rural Transaction Centre Program. The premises in which the branch is
located is owned by the Crows Nest Shire Council who purchased it after the closure of the ANZ
branch.51 The Crows Nest Shire Council contributed $110,000 towards the acquisition of the
premises and the Commonwealth $38,000. The premises are a co-location centre for all three levels
of government, a tourist promotion and information centre and there is PC and Internet access to the
building.52
As was the case in Herberton, the Crows Nest Shire Council (as the local authority) was right behind
the project. At the time, the establishment of the community branch at Crows Nest represented the
first such venture entered into by Heritage Building Society and truly represented a joint venture
49
Ralston and Beal, 1999, p 184.
50
Centre for Australian Financial Institutions, June 1999, p 6.
51
Crow’s Nest Advertiser, 17 May 1999, p 1.
52
Crows Nest celebrates opening of its Rural Transaction Centre,
http://www.com.au/2000/september/crows.htm Down loaded 31 May 2001.between Heritage and the local community.53 The Chairman of Heritage acknowledged the solid
support received from the Crows Nest Shire Council, the Tourist and Progress Association. In the
first week of operations the branch accepted approximately $1.5 million in deposits and opened 100
new accounts.
The Chief Executive Officer of the branch said that there was a fundamental basis on which the
venture is built:
One of the secrets to its success has been the sense that townspeople actually have a stake in its future.
They know that its success depends on them, and it will only work if they support it.54
The Building Society has for the first time provided 24 hour withdrawal access for the Crows Nest
community by installing an ATM.
4.2 COMMUNITY BANKS
Community banks are said to focus on the needs of the customer and on a return to traditional
banking values. Community banks differ from the larger mainstream banks in that they:
(i) locate a niche in the market;
(i) become involved in the community; but still
(ii) uphold a corporate culture; and
(iii)introduce innovative customer services.55
Community banks, because of their small size, focus on their local communities and the task of
building regional loyalty which tends to overcome the disadvantages associated with their small
stature.56 In this respect they differ little from credit unions.
4.2.1 Bendigo Bank’s Community Bank branches
‘Community Bank’ is a registered trademark for the Bendigo Bank group. Since 1998 Bendigo Bank
has opened 40 branches across Australia in Victoria, New South Wales, South Australia and
Tasmania under the trading banner of Community Bank. It is now opening branches in Queensland.
The latest branch to open was in the New South Wales town of Boorowa in May 2001. The first
branches are just beginning to return a profit to their shareholders.
53
‘Community bank officially opens’, Crow’s Nest Advertiser, 17 May 1999, p 1.
54
Crow’s Nest Advertiser, 17 May 1999, p 2.
55
Centre for Australian Financial Institutions, ‘Community Banks: A new direction for cooperative societies?’,
Newsletter, 1(1) January 1997, pp 3-5, p 4.
56
Centre for Australian Financial Institutions, p 5.The branch that opened in Carrum Downs, Victoria commenced trading in October 1999 and is
indicative of the community support that can be expected. Carrum Downs is located within the
Lower House seat of Cranborne. The current member became a shareholder of the branch and is its
inaugural chairman.57
Bendigo Bank officially opened its first branch in Ipswich in December 2000. This branch is,
however, not part of its Community Bank chain. On 8 June 2001 the Commonwealth Bank
announced that it would close its business branch located in Ipswich. Ipswich City Council Mayor
responded by saying that the Council would close its accounts with the Commonwealth and open
accounts with the Bendigo Bank and Suncorp Metway.58
In October 2000 the First Australian Building Society which trades under the banner of Northern
Building Society joined the Bendigo Bank group. The Northern Building Society has 24 branches in
Queensland in centres along the coast from Port Douglas to Gladstone. This gives Bendigo Bank a
network of branches from which to expand its exposure in Queensland. First Australian Building
Society will eventually be incorporated into Bendigo Bank. All First Australian Building Society
accounts will become Bendigo Bank accounts on 31 August 2001.
An interesting feature of the ownership structure of Bendigo Bank is that approximately 25% of
shareholders in Bendigo Bank are Queensland residents and a similar level of the Bank’s business
originates from Queensland.59
Bendigo Bank announced that its first Community Bank branches in Queensland would be located at
Biggera Waters and Paradise Point. Both these locations lie within Gold Coast City. The Biggera
Waters branch opened on 3 June 2001. Preliminary survey work is being conducted to ascertain the
feasibility of opening up Community branches in the Pine River Shire location of Brendale, and the
Brisbane City locations of Bellbowrie and Carina.60
Other locations under consideration within the Gold Coast area are Oxenford, Nerang and
Currumbin. In the north of the State, local communities in Cooktown and Gordonvale are attempting
to gain sufficient support to allow a Community Bank branch to open.61
The opening of Community Bank branches on a franchise basis with between 300 to 400 members of
the local community as shareholders who contribute between $100 and $5,00062 is viewed as
57
‘Community bank open’, http://www.independentnewsgroup.com.au/archive/banks/015.htm Downloaded 16 May
2001.
58
‘Ipswich takes its $9m and decides to ditch bank’, The Courier Mail, 8 June 2001, p 5.
59
First Australian Building Society, ‘Bendigo Bank letter to Customers’,
http://www.firstaustralian.com.au/aboutus/lettertocus.htm Down loaded 31 May, 2001.
60
‘Suburbs back plans for community banks’, Courier Mail, 24 May 2001, p 3.
61
‘Breaking the bank: towns go it alone’, Sunday Mail, 25 March 2001, p 17.representing just more than the return of banking services.63 The very first two Community Bank
branches that were opened by the Bendigo Bank in June 1998 were in the Victorian towns of Minyip
and Rupanyup. Such was the level of community support both these branches reached a break-even
point after having only been in operation for 6 months.64
Bendigo Bank has moved its national loan headquarters from Bendigo to Ipswich.65 The bank is also
investigating the feasibility of joining with the Australian Council of Social Service (ACOSS) to
establish a Community Sector Bank which will, if established, meet the specific banking needs of
community organisations. As with the community bank, ownership would be shared between the
community organisations and Bendigo Bank.66
4.2.2 Elders Rural Bank
A partnership between Bendigo Bank Limited and Elders Pastoral Company was given license to
operate banking services under the name of Elders Rural Bank from June 2000. Elders Pastoral has a
network of 400 sites across the country. It is planned that eventually all of these sites will be able to
offer banking services to ordinary customers in addition to farmers. The combined bank is headed by
John Dawkins, a former Federal Treasurer.67 The House of Representatives Standing Committee
doubted the ability of this facility partnership to alleviate to any great degree the problem of banking
facilities in rural areas because most Elders outlets are located in areas that are reasonably serviced by
bank branches.68
62
‘Breaking the bank: How it works’, Sunday Mail, 25 March 2001, p 17.
63
‘Community Banks return profits to the community’,
http://www.firstaustralian.com.au/news/news.htm Down loaded 31 May 2001.
64
‘Wimmera 2020’, Wimmera 2020 A Sustainable Regional Development Committee
http://www.wca.vic.gov.au./w2020/page4.html Down loaded 16 May 2001.
65
‘Biggera better for Bendigo’, Courier Mail, 14 April 2001, p 67.
66
‘Community Sector Banking Proposal’, Australian Council of Social Service,
http://www.acoss.org.au/events/bank.htm Down loaded 16 May 2001.
67
‘Bush banking on competition for its savings’,
http://smh.com.au/news/0006/28/national/national05.html Down loaded 21 May 2001.
68
Australia. House of Representatives Standing Committee on Economics, Finance and Public Administration, 1999, p
65.4.2.3 Non financial institutions
The Pharmacy Guild of Australia has indicated in evidence to the House of Representatives
Committee that pharmacies expected to play an increased role in the provision of financial services in
rural areas of Australia where institutions have withdrawn direct presence. The Guild informed the
Committee that it was having discussions with the Western Australian bank, BankWest, to form
Guild Bank. It was proposed that the arrangement would provide a full range of retail and business
banking services through 5,000 pharmacies.69
5 THE PROCESS OF FILLING THE VOID
Financial institutions considering moving into voids left by a previous provider find that it is essential
to conduct a survey of the market to test the level of support that would be forthcoming from the
community. This occurred in the case of the credit union opening a branch in Herberton:
… if you get the council, the community leaders and everybody else enthused about what we sell as a
community solution to a community problem, then the community comes in behind you. One thing that
has not been mentioned so far this morning is that the first thing we did in Herberton, after we had won
the support of all the local councillors and the mayor, was to do a survey of the total community.70
The environment into which credit unions step when they establish new branches in rural and remote
areas was described to the House of Representatives hearing as:
With every community we go into, we encourage the credit union and the community to form a local
area committee. As we said initially, credit unions are mutuals which were formed by groups of people
who wanted to help each other. So when we take a credit union into a community that is not familiar
with it, we try to get them to understand the credit union model. One of the ways of doing that is to have
them form a local area committee so that they can have a say in the style of services delivered to their
community, the hours of services they operate, what additional services they need and what activities
should be supported by the credit union… community ownership is a feature that we introduce into all
our centres.71
Building societies exist under State legislation to raise funds to assist members by the granting of
secured loans to build or acquire homes. Credit unions operate by way of predominantly borrowing
from, and providing finance to, their own members. As such, both of these saving and lending
institutions place themselves outside the general banking sector because they only provide funds for
limited specific purposes. However, community banking as a concept is now emerging to fill some
69
Australia. House of Representatives Standing Committee on Economics, Finance and Public Administration, 1999, p
63.
70
Australia. House of Representatives Standing Committee, Hearing held Herberton 28 July 1998, p 747.
71
Australia. House of Representatives Standing Committee, Hearing held Herberton 28 July 1998, p 748.of the gap left by bank closures in general banking services that building societies and credit unions
cannot provide.
Building societies numbered 113 in 1980 but this had fallen to 21 by 1998. Much of the decline in
the number of building societies has resulted from some building societies converting to bank status,
whereby their mutual status was replaced by shareholder status.
Disheartened bank customers/clients and specifically, small business owners have become the driving
force in urban and country communities for the establishment of community bank branches. The
community banking model has been put into practice by the Bendigo Bank and is based on a
franchise-type arrangement. The arrangement is that Bendigo Bank provides capital, technology,
training, and continuing support. The local community shareholders are expected to provide
premises for the branch as well as sufficient staff. This arrangement results in a share of profits.72
A franchise type arrangement is also conducted by Colonial State Bank and Wespac Bank. The latter
has operated through an agency in the rural town of Miles since the bank closed its local branch.73
The Bendigo Bank itself is a product of the deregulated financial system as it was previously
registered in Victoria as a building society.
The management system under which the Community Bank (Bendigo) operates is by way of
franchise agreements. Bendigo Bank describes its community banking arrangement as providing
communities with an opportunity to enhance community control over local capital thereby ensuring
that more money stays in the local area. In so doing, a Community Bank branch provides certainty of
banking services for the local community.74
The process of establishing a community branch may seem daunting at first. The process of
establishing Bendigo’s franchises at Minyip and Rupanyup in Victoria was described as:
Initially the townspeople raised $20 000 to undertake a feasibility study. From this a prospectus was
compiled and distributed and then a management group was formed to run the bank. Stage two involved
raising $230 000 to fit-out 2 banks and train staff. To allow the whole community the opportunity to
invest in the bank, a cap of $5 000 and a minimum of $500 were agreed upon.75
The branches which opened under the Bendigo banner are not separately licensed as they operate
under the umbrella license of Bendigo Bank. Bendigo Bank reports to the Australian Prudential
72
Ralston and Beal, 2000, pp 82-83.
73
Ralston and Beal, 2000, p 83.
74
‘Community Bank Branch … The First Step’, http://www.communitybank.com.au/intro.htm Down loaded 16 May
2001.
75
‘Community Banking’, Landline, Australian Broadcasting Corporation Online, 27 September 1998,
http://www.abc.net.au/landline/11270998.htm Down loaded 17 May 2001.Regulatory Authority, but the Community Bank branches have no such reporting requirements as
their reporting obligation lies with Bendigo Bank.76
Management committees established to head the individual branches make many of the decisions
about the operations of those branches but decisions about credit and lending are made further afield
by Bendigo Bank which carries the associated debt risk. The initial agreement with Bendigo Bank is
for 5 years with an option to renew for a similar period.77
Not all attempts at establishing a community bank have been successful. An attempt to establish a
branch to service the Doveton and Hallam areas in Victoria in 1999 did not succeed due to a lack of
community support. In this case, the organising committee failed to raise sufficient initial
shareholder capital to a level of $250,000 as the community’s share of starting and fitting out a
branch. The survey conducted to ascertain viability cost $13,475 which was shared as a cost among
those who had pledged money to the branch as initial shareholders. Despite the setback, Bendigo
Bank indicated that it was interested in opening and operating an agency until such time as the level
of business being conducted warranted the establishment of a branch under the Community Bank
banner.78
6 CONCLUSION
The closure of bank branches has been general across the country with many urban areas as well as
rural areas being affected. The effects are more pronounced in rural areas however with some areas
losing their last remaining service. Both the Commonwealth government, through the Rural
Transaction Centres Program, and the Queensland government, through the Government Agent
Program, are attempting to find locations for the establishment of face to face banking services in
areas where there is no such service is available. For smaller rural communities, banking services
may be vital for their survival.
APPENDIX
Life after the bank branch
(follow-up survey of 6 towns in rural NSW and Qld)
By Alan Mitchell
76
Bryan O’Connell, ‘Community Banks-On The Prowl’, The Australian Banker, December 1998, pp 232-233, p 232.
77
O’Connell, p 233.
78
‘Community bank venture fails’,
http://www.independentnewsgroup.com.au/archive/banks/018.htm Down loaded 16 May 2001.The Australian Financial Review 03/01/01 p.30
For those Government politicians who cack themselves every time another country town loses
its bank, here is some relatively optimistic holiday reading.
It's a follow-up survey of the residents of six towns in NSW and Queensland that had lost their last
bank branch.
The survey, by Deborah Ralston and Diana Beal of the University of Southern Queensland, is
reported in the Economic Society's December issue of Economic Papers.
The towns are Jandowae and Wandoan in Queensland, and Ashford, Bundarra, Urana and Oaklands
in NSW.
Ralston and Beal had surveyed the residents of each town two years earlier after the banks had
already closed.
The good news is that the towns appear to have survived the loss of their bank branches fairly
successfully.
Three of the towns have attracted a credit union.
Access to self-service facilities has also increased, with more Eftpos outlets and more widely
available telephone and internet banking.
One-third of those surveyed reported changing their saving and investment service provider in the two
years between surveys;.
one- fifth had changed their transactions services provider.
Credit unions now provide transaction services for 24 per cent of those surveyed;.
building societies provide transactions services for 19 per cent.
Building societies, credit unions and superannuation funds all now play a significant role in providing
savings and investment services.
In the six towns, almost 30 per cent of respondents use credit union saving and investment products,
while 76 per cent use bank products.
In the case of Urana, the proportion using credit union products is 58 per cent;.
in Ashford it's 55 per cent.
With these changes has come a sharp decline in the number of people who travel to nearby regional
centres to do their banking.
This, as Ralston and Beal say, is a positive sign for the future commercial life of these little towns,
because people tend to do their shopping and their banking in the same town.
The six towns undoubtedly have lost retail sales to other centres but the availability of self-service
arrangements and local face-to-face services has helped keep cash circulating within the communities.Another encouraging sign, given the shock to confidence because of the bank branch closures, is that
almost 30 per cent of respondents in the latest survey report have taken out new loans.
There is, it seems, life after the village bank branch, with some adjustment on both the demand and
supply sides of the market.
On the demand side, people have had to make more use of electronic banking.
Many have switched to alternative financial institutions such as credit unions and building societies.
On the supply side, local businesses and their Eftpos machines have assumed a new importance, with
businesses having to carry larger cash balances.
Credit unions have expanded and new franchise-agency arrangements have sprung up.
There has been some government intervention, but it has been fairly light-handed.
It includes the development of Rural Transaction Centres and the CreditCare initiative, which
receives federal and State government funding.
CreditCare has helped 45 rural communities around Australia set up a credit union or a building
society.
The Bendigo Bank has developed its community banking franchise, in which it provides capital,
technology, training and continuing support while the community provides premises, staff and a commitment
to continuing business.
Westpac has built on the agency model, while Australia Post has developed its giroPost operation.
In the meantime, the banks have been able to shed around 20 per cent of their branches over the past
decade.
Obviously, all of this is just work in progress.
The forces that have driven banks to close rural branches are not going to go away.
Electronic banking will only become cheaper and relatively more profitable, while inland towns
especially will continue to feel the pressures of internal migration to the coast, of improved transport and
communications, increased farm productivity and global competition.
Bank branch closures have contributed to the decline of towns, but they are part of a wider and
unstoppable structural change.
Certainly, it is not in the nation's interest to try to stop the banks or any other industry cutting
unnecessary costs.
The politicians' objective should be to promote competition, to ensure that the banks' lower costs are
passed on to all consumers, and to provide limited assistance to (mainly rural) communities faced with high
costs of adjustment.
In the case of the six towns in this survey, competition and a small amount of government assistance
seem to have gone a long way in helping people adjust to inevitable structural change.Biggera better for Bendigo
By Louise Brannelly
The Courier Mail 14/04/01 p.67
VICTORIA'S Bendigo Bank rolls out the first of its community bank branches in Queensland this June,
almost a year to the day after kicking off its ambitious tilt at the northern market.
The Biggera Waters branch on the Gold Coast opens on June 3, with Paradise Point set to follow
shortly after.
More than 50 other communities in the state have approached Bendigo about the grassroots concept,
of which a dozen have established steering committees and moved towards fund raising.
They usually have to raise working capital from $300,000 to $400,000 from hundreds of local
residents and businesses before Bendigo gives the final go- ahead.
Local land developer Bill Bowden has spearheaded the push to establish a branch at Brendale, on
Brisbane's northside, where the last big-named bank shut up shop six or seven months ago.
Brendale, which has 850 small businesses in its catchment area, has received pledges for $320,000
and should reach its $400,000 target within the next month. The concept works essentially like a franchise,
with the bank and community sharing revenue from the branch on a 50:50 basis.
In just more than two years, Bendigo has established 39 community branches Australia-wide, which
have a combined balance sheet of $800 million.
"We get realistically three to four times the growth we would if we set up in our own rights," said
Bendigo's Queensland chief financial officer John Goddard.
He said 17 branches had begun distributing profits back to shareholders and in the case of some of the
older branches, the distributed profit was up to $20,000 a month.
The southern bank's push into Queensland comes at a time when a fierce community backlash against
the major banks has put high fees and bank closures on the political radar.
Mr Goddard said the goodwill wrapped up in community banking had already helped Bendigo expand
its brand north of the Tweed.
Bendigo has established its northern head office in Ipswich and acquired a network of 47 branches
following its $140 million friendly takeover of First Australian Building Society last June.
Roughly one quarter of Bendigo's shareholders live in Queensland. It has rebadged 36 branches as
Bendigo Bank in the past few months and should complete the rest within six to eight weeks.
Most branches were opening two to four times the level of new accounts they did prior to the
conversion, Mr Goddard said. "We were never quite sure what would happen but from the day we rolled out
the first Bendigo brand, we have found the level of account openings has gone through the roof," he said.
It has also relocated from Bendigo to Ipswich its national loan services department which employs 70
people and handles $2 billion- plus in business a year.And it plans to roll out a community telco in Ipswich, like it has already in Bendigo, before the end of
the year.
"It's all about aggregation and buying power and it should improve the level of telecommunications
services in Ipswich," Mr Goddard said.
Initially the telco will provide its service to a handful of business shareholders but in time the wider
community will benefit.The Emergence of Community Style Banking Page 1
This Publication:
RBR 17/01 The Emergence of Community Style Banking as a Response to the
Closing of Bank Branches (QPL June 2001)
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