SERVICE ONE Members Banking has welcomed the Government's decision to guarantee all deposits with Australia's credit unions, banks and building societies.

SERVICE ONE's Chief Executive, Peter Carlin, said the guarantee should put Australian minds at ease and means that deposits with SERVICE ONE are fully covered with the backing of the Australian Government.

What is the Australian Government Deposit Guarantee?

The Prime Minister announced on 12 October 2008 a Scheme to guarantee all deposits held in credits unions, building societies and banks in Australia. This Scheme ensures that depositors with Australian credit unions, banks, and building societies will be guaranteed repayment of their funds in the extremely unlikely event that any banking institution faces stress.

There is no cap on the guarantee, however, after 28 November 2008, a fee applies to guaranteed deposits in excess of $1 million and you need to opt-in to the Scheme.

The Australian Government Deposit Guarantee ends on 12 October 2011. However, deposits in excess of $1 million can be guaranteed for up to 60 months if confirmed prior to this date.

How does this impact SERVICE ONE?

The Government’s decisive move to guarantee all deposits provides security for depositors. SERVICE ONE has been well placed to help protect Members against the effects of the global financial crisis and continues to provide security for Members as markets begin to recover. The Australian Government Deposit Guarantee has provided reassurance in the unlikely event an Australian financial institution faces stress.

There are some fundamental operational traits unique to SERVICE ONE that has contributed to our secure position in the market, including the facts that:

• we fund 100 per cent of our loans from retained earnings and Members’ deposits - our Member deposits go into making Member loans
• we have no exposure to wholesale financial markets
• we have no securitised loans, hence we have no obligations to investors
• all our liquidity is held in high quality liquid assets as defined by the Australian Prudential Regulation Authority (APRA), and
• we have maintained a prudent approach to our lending by steering away from riskier products such as ‘low-doc’ and no deposit loans.

As exposure to the wholesale market and questionable lending practices have been the cause of problems for other financial institutions internationally, these are not issues facing SERVICE ONE.

The bigger picture

It is also important to understand that SERVICE ONE is part of a broader network of credit unions and mutual building societies. As such:

• SERVICE ONE and other financial institutions as part of this network are Authorised Deposit-taking Institutions (ADIs)
• we are regulated and licensed under the same regulatory framework as the big banks, and have strict prudential standards addressing capital, liquidity and credit risk management
• the credit union and mutual building societies movement represents collective assets of over $60 billion and 4.5 million Members, and
• the household deposit base of Australia’s mutual ADIs is second only to the Commonwealth Bank.

The Government’s announcement regarding the ‘financial claims scheme’ backs up the statement from the RBA and APRA that the Australian banking system is sound and this measure will further improve confidence in local banking institutions.

You may be asking yourself…

Does SERVICE ONE have exposure to the sub prime debt overseas?

SERVICE ONE has absolutely no exposure to any sub prime debt in the US or anywhere else. We do not engage in sub prime lending and do not invest in securities based on sub prime loans.

What is the difference between how the big banks and SERVICE ONE are regulated?

There is very little difference. SERVICE ONE is subject to the same strict, legally-enforceable prudential standards as the big Australian banks, overseen by APRA.

How is SERVICE ONE performing?

There are many ways to measure performance, but we continue to operate with liquidity levels (the ability for us to meet our obligations as they fall due) higher than APRA’s regulatory minimum rate.

Our Capital Adequacy Ratio, which is a measure of our capital strength as at 30 June 2009 was over 13% - again, higher than the required regulatory level.

SERVICE ONE’s assets grew by 5.5% over the last financial year to $280,596,000. Asset growth is driven mainly by deposits and since 30 June 2009 we have continued to grow strongly in this area.

Further information

You may like to refer to the information below which offers further details given the unstable nature of the financial markets:

• APRA’s web site contains information about ADIs and on banking sector in general. APRA are also happy to answer any questions regarding regulation of Australia’s banking sector on 1300 131 060.
• Abacus (the industry body for banking mutuals) has several resources:
  • fact sheet - financial claims scheme/deposit protection
  • media release - credit unions, building societies have no exposure to toxic US loans
  • fact sheet - credit unions and mutual building societies - growing from strength to strength
• SERVICE ONE's Capital Adequacy disclosure.

If you would like further information, please contact us.