By Eric Johnston
MERGER talks between two of the nation's biggest credit unions have broken down, setting back efforts to create a $6 billion competitor for the nation's biggest commercial banks.
Long-running negotiations between MECU, with its headquarters in Melbourne, and NSW-based Teachers Credit Union are believed to have stalled at the final hurdle.
It is believed that MECU, itself a product of several mergers, last week decided to shelve talks after being unable to secure unanimous support from the Teachers' board for a deal.
A merger would have created the nation's second-biggest credit union, behind CUA, but crucially the merged entity would have had a national footprint, increasing competition at a time the big four lenders have an unprecedented grip on the home lending market.
The issue of reduced competition in the banking sector loomed at a Senate economics committee hearing in Melbourne yesterday, where National Australia Bank acknowledged that consumers' choices had narrowed in the past year.
''I think it's fair to say that while there's still clear competition, the amount of choice available to consumers has decreased through the course of the global financial crisis,'' said Steven Munchenberg, NAB's group manager of government affairs and public policy.
Mr Munchenberg was responding to a question from Family First senator Steven Fielding, who is pushing a plan to force banks to seek government approval not to pass on official interest rate cuts.
NAB argued against such a move, saying the cost of funds to support mortgages and other loans had ''increased significantly'' and was no longer accurately reflected by the cash rate set by the Reserve Bank.
A stronger MECU-Teachers would have also represented a competitive threat to regional players Bendigo Bank and Bank of Queensland, which have been feeling the squeeze from an escalation in funding costs.
In August, the two credit unions entered into an agreement to ''investigate the commercial and member benefits'' from a merger. Driving the deal had been an attempt to compete against bigger rivals by pooling cash reserves and spreading costs. The two lenders also regarded a merger as providing a strong geographical fit.
It is believed that a merger of the two credit unions would have created an entity with $6 billion in assets in the second half of 2010 and a combined $1 billion in surplus liquidity.
Teachers has more than 157,000 members and assets of about $2.9 billion.
Last year Teachers, which writes mostly home loans and offers credit cards to secondary school and TAFE teachers across NSW and the ACT, reported a 12.2 per cent drop in profit to $17.5 million after being hit by higher impairment charges and funding costs.
MECU, which has links to the education industry but is a product of more than 20 mergers in the past four decades, has almost 110,000 members. MECU last year increased profit by 4.4 per cent to $18.3 million, while assets jumped 22 per cent to $1.8 billion. It is believed to have initiated talks with another, unnamed, credit union as part of efforts to boost its reach.
Credit unions are regarded as attractive to regional banks for takeovers given their large deposit bases and conservative lending books. Yet members are often reluctant to demutualise.
Lending by 117 credit unions rose by 8.3 per cent in 2008-09, Australian Prudential Regulation Authority data shows.