From Building Society to Bank

The Heritage Bank CEO, Peter Lock, talks about how they went from Australia’s largest customer owned Building Society to a Bank

Introduction: From Building Society to Bank

Ross Greenwood: Welcome back to Money News, very short we’re going to tell you about the infant formula company Bellamys, whose shares were suspended from the market at the moment, and retail shareholders not happy because they’d recently shelled out some 60 million dollars as part of a capital raising. Bellamy’s now said that they will allow retail shareholders who participated in net capital raising to get their money back, being interesting one to watch. Anyway, the federal government is also come out via the treasurer Scott Morrison and indicated that credit unions and building societies, in other words non-banks will be able to use the name bank in the future.

Now this is as much a piece of window dressing as it is actual economic formula. The reason for that is because a lot of people feel much safer putting their money into a bank as compared with putting their money into a credit union or a building society. Even though the credit union and the building society still has to comply with the same laws as the biggest banks in the land do. Let’s try and work out exactly why it is that the government is doing this, and then also what benefits will come in regards to competition. Peter Lock is the chief executive of the Heritage Bank based in Toowoomba. 142 years old, Heritage Bank was for many years, decades, known as the Heritage Building Society.

It serviced a local community around Toowoomba highly successful but it decided to convert itself to a bank. The interesting thing is like all other organizations that have done this it needed the minimum capital requirements to do so, and that has been an obstacle for many other small institutions from doing this. Let’s get him on the line.

Peter Lock, many thanks for your time.

Interview: Peter Lock, Chief Executive, Heritage Bank

Peter Lock: Ross how are you?

Ross Greenwood: I’m all right. 142 years it’s some history, Heritage bank isn’t it?

Peter Lock: It’s magnificent history, very proud of it, one of the oldest institutions in the country.

Ross Greenwood: So just explain how did it start in the very outset?

Peter Lock: Back in 1975 the Toowoomba Permanent Building Society was the start, and these things start regionally because of lack of banking services back in that time, and it grew through until 1982 where the Toowoomba Permanent Building Society and the Darling Downs Building Society merged together to form the Heritage Building Society.

Ross Greenwood: So obviously your strategy has been to grow this business, and from a regional very tiny organization to something that’s been much bigger and much more substantial. At what point did you decide to become a bank?

Peter Lock: 2011 is when we made the switch to Heritage bank, and through that time, 142 year history, we’ve grown to be Australia’s largest customer owned bank, and at assets just over $9.3 billion, which is a small bank by the total banking sector, but a large bank. In fact, the third largest mutual in the country, largest Mutual Bank in the country, fourth largest cooperative in the country.

Ross Greenwood: So why is it that the government has made this change. I know there have been recommendations from the customer owned Banking Association, of which you are a member, to make this move. Why would the government made it?

Peter Lock: Well, the government through it recent moves in the federal budget, have been moving to what we call level the playing field. You’ve seen that in the bank levy, you’ve seen that the announcements that the treasurer’s made with the Productivity Commission, and you’ve seen it in the most recent announcements with the Hammond review. Which is directed specifically at the cooperative and mutual sector, and that should allow leveling of the playing fields and hopefully making a competitive market sector, which is the customer owned banking sector, a major competitor to the major or the listed banks.

Ross Greenwood: Because I know overseas, particularly in the United States if any organization would call themselves a bank, and they were illegal in doing so, there would be significant penalties placed upon them. As I understand is also here in Australia. It seems to me that if the government is dropping the barriers to using the word bank, because that’s what it’s all about. To try and encourage more depositors into smaller institutions, so they have a greater pool of capital to be able to lend out at more competitive rates from the bigger banks that’s the logic behind all this as I understand it.

Peter Lock: The logic is correct but you still have to have a banking license, you still have to be an approved deposit institution, an ADI. APRA will still issue those banking licenses, still have to comply or ADI still have to comply with the regulation as you said at the opening. Exactly the same regulations and governances as the big four apply to all institutions that carry the name bank.

Ross Greenwood: I tell you, it’s a really fascinating story. 142 years old consider that in regards to one of our oldest banks in the land right now. Heritage Bank now a genuine national organization, not just a regional organization and you can understand now as to why many of those other smaller institutions might also be keen to get a banking license.

Peter Lock the chief executive of Heritage bank based in Toowoomba and Peter we appreciate your turning the program this evening.

Peter Lock: Thanks Ross.

Other previously published articles emphasising banks.

19-07-2017 APRA lifts bank capital requirements

19-07-2017 Treasurer Scott Morrison: Banks hold enough capital to withstand a financial storm

17-07-2017 From Building Society to Bank

06-07-2017 Credit Card reward points to be slashed by banks

30-05-2017 Bank executives to be held accountable

22-05-2017 Westpac reveals the impact of the bank levy

18-05-2017 David Coleman – Recommendations to come into effect after bank inquiry

10-05-2017 Kate Carnell – Bank Levy

10-05-2017 Anna Bligh – Australian Bankers Association – Bank Levy

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