Australia’s largest credit union, CUA, will continue accelerating its investment in the foundations needed to grow its digital capabilities and scale the business, after recording solid underlying performance over the past year.
In FY19 the member-owned organisation posted strong balance sheet growth and record member growth, adding more than twice as many members as the prior year. CUA Group closed the year with a cash profit of $49.47 million, down 9.7 per cent.
“CUA’s underlying business performance remains robust in what has been a challenging external environment,” CEO Rob Goudswaard said.
“Generating sustainable profits, rather than maximising short-term gains, is at the core of mutuality. This financial performance has supported our continued investment in the digital foundations that will transform our member experience and allow us to scale more efficiently.
“A testament to this transformation is our award-winning iM CUA app, which now has almost 20,000 members enjoying the human service and digital convenience of connecting with a personal banker via the messaging app.
“We are also continuing to invest in our technology strategy to ensure our key processes are responsive to member needs. This includes a new lending origination system, which will transform our end-to-end lending process and deliver a step change in simplifying the home loan journey.”
Mr Goudswaard acknowledged it had been a tough year, citing economic pressures.
“Volatile investment markets, the inverted yield curve, subdued property market and low levels of consumer confidence have created economic headwinds that have been challenging not just for CUA, but also our competitors,” he said.
“The record low RBA cash rate has also placed further pressure on CUA’s already tight margins, which impacts profitability. We have however strived to balance the best interests of all our members, distributing rate changes as fairly and equitably as possible by passing on benefits to borrowers, while shielding deposit holders from the full impact.”
The cost of regulation and compliance also continued to climb, with reforms flowing from the Financial Services Royal Commission. CUA spent an additional $2 million on regulation and compliance this year to respond to the changing regulatory environment, including implementing the Banking Executive Accountability Regime (BEAR).
“This pressure has been felt across the financial services sector over the past year and CUA has not been immune to this impact,” Mr Goudswaard said.
CUA Group performance
After first-half challenges, CUA saw some improvements in H2-FY19. Easing pressure on wholesale funding costs, and more moderate lending growth over the second half, reduced the reliance on expensive funding sources.
CUA Health also posted stronger performance in the six months to 30 June 2019, compared to the H1-FY19 result, benefitting from higher investment income and growth in policy sales.
CUA posted strong balance sheet growth across assets, loans under management and retail deposits, outperforming FY18 results and highlighting the mutual’s relevance as an alternative in today’s competitive banking environment. Retail deposits passed $10 billion for the first time, while loans under management closed at $13.44 billion, up 9.3 per cent. A total of $3.61 billion in new loans was largely driven by strong home lending. As a result, CUA’s home loan portfolio grew by 2.5 times system. This strong lending growth will make a positive contribution to revenue in the coming years.
Operating costs were up by 7.0 per cent, driven by increasing compliance and regulatory costs, amortisation of technology investments and acceleration of key projects and strategic initiatives.
Loan impairments and bad debts remained steady, reflecting the continued strength of CUA’s conservative home loan and personal loan portfolios, despite deteriorating economic conditions.
CUA Group posted a NPAT of $37.77 million, which reflected the impact of non-recurring items. This was down 31.1 per cent on FY18.
During the year, CUA identified a legacy issue relating to its financial planning business sold in 2014. Where clients had paid fees for ongoing advice, investigations were unable to clearly establish whether financial planning advice had been provided in all instances. The issue was self-reported to the regulator, the Australian Securities and Investments Commission (ASIC).
“We proactively dealt with this issue to make amends quickly, fairly and transparently. Where there was uncertainty about whether the financial planning advice was provided, CUA made a decision to act in the best interests of the impacted clients and repay the fees, as well as compound interest,” Mr Goudswaard said.
“CUA has started notifying impacted clients and making remediation payments, with most payments to be made by the end of October.”
Remediation of the issue had a pre-tax financial impact of $10.57 million on the FY19 result.
CUA also decided to decommission some components of CUA’s current lending systems, resulting in a $6.15 million pre-tax impairment charge. Mr Goudswaard noted that CUA had invested $58.5 million in technology systems and software since 2016. The change in direction would allow CUA to move forward with investing in enhanced lending origination capabilities.
“This will transform our end-to-end lending process and provide a better experience to meet the changing needs of our members, while also supporting future home loan growth.”
Transforming member experience
Mr Goudswaard said improvements in both member and team member satisfaction were a credit to the organisation, given the current climate facing financial services.
“Our continued focus on strengthening CUA’s member-centric culture is reflected in our improved member advocacy scores,” he said.
“By 30 June 2019, we had climbed to third place on Net Promoter Score rankings – up from fifth at the half-year – and were continuing to narrow the gap to the market leader.
“We have also seen a two-year trend of improving culture and engagement scores among our workforce, at a time when engagement and culture scores across the sector have been falling.”
CUA continued to invest in digital channels and service improvements during the year to provide a more streamlined and convenient experience for members.
This included investment in new and refurbished branches, the iM CUA app and continued rollout of real time payments via the New Payments Platform (NPP). Around 25,000 CUA members now have an active PayID, while CUA has around 350,000 transactions per month being made in real-time via the NPP, growing at around 14 per cent each month.
“We are investing heavily in enhancing our digital capabilities across mobile and online banking, as well as continuing to scale our iM CUA app so we’ll be able to offer it to non-members for the first time. This is vital to remain relevant and keep pace with changing consumer expectations,” Mr Goudswaard said.
“And in the coming months, we will be identifying partners that can help us create an ‘ecosystem’ of products and services that go beyond traditional banking and insurance offers, to support the financial wellbeing of our members.”
CUA is also taking steps to leverage the legislation passed earlier in 2019 to establish a Mutual Capital Instrument.
“We are future-proofing CUA by making changes that will prepare us to be able to raise capital so we are ready to seize opportunities that may emerge. Access to capital will better equip us to invest, grow, innovate and compete, while remaining commtted to our future as a mutual.”
CUA Health posted NPAT of $7.88 million for the year, underpinned by a solid second half result. Price inflation across the healthcare sector and higher health insurance claims (up $2.62 million) impacted performance, with NPAT down $1.11 million on the standout FY18 result.
Mr Goudswaard said CUA Health had defied industry challenges, issuing more than 7,000 new policies during the year, an uplift of around 70 per cent compared to the prior year.
“While the health insurance industry continues to face a declining health insurance participation rate, CUA Health bucked the trend with net growth of 2,776 policy-holders. This took the total number of people insured with CUA Health to a two-year high of 77,910,” Mr Goudswaard said.
“Furthermore, an overhaul of CUA Health’s product suite in early 2019 allowed us to be one of the first health insurers to deliver the benefits of clearer, more transparent gold, silver and bronze levels of cover. We also introduced new excess options to help reduce premiums and are one of the few insurers to now offer youth discounts across all products.”
CUA Health continued to offer its 4 per cent loyalty discount for people with both CUA banking and health insurance, returning $3.16 million back in savings to members over the year.
Premium revenue for the period was down by around 0.5 per cent to $143.84 million, while CUA returned $123.26 million as benefits for policy holders, or around 85.7 cents in the dollar.
Key achievements for FY19:
- CUA rolled out its Australian first messaging app iM CUA to Apple and Android users in November/ December 2018. The app has now surpassed 20,000 registered users.
- CUA introduced fast payments into the CUA Mobile Banking app, after being one of the first banking providers in Australia to adopt the New Payments Platform (NPP) earlier in the year.
- CUA opened its second Community Hub style branch in the growing Brisbane suburb of North Lakes and upgraded branches at Browns Plains and Capalaba to include community space.
- CEO Rob Goudswaard was awarded CEO Magazine’s Financial Services Executive of the Year.
- CUA was named the Most Innovative Mutual at the RFI Group Australian Banking Innovation Awards.
- CUA Health was awarded the 2019 Product Review award for best health insurer, with a 4.5-star rating, earned through independent consumer reviews.
- CUA continued its partnership with AFL club Carlton FC and extended its support as the Principal Partner to the Queensland Cricket Association and Brisbane Heat men’s and women’s cricket teams for another three years to 2022.
- CUA furthered its commitment to the financial wellbeing of members by partnering with Good Shepherd Microfinance and the Thriving Communities Partnership.
- CUA team members performed more than 1,200 days of volunteering in the community.
- CUA was recognised by the Workplace Gender Equality Agency as an employer of choice for gender equality for the fifth consecutive year.