Banking On People Power
The Age
Monday October 2, 2000
Sick of banking with the big guys? For about $350,000, a group of you can start your own bank. And plenty of people are banding together to do just that.
In something of a people's movement, they are packing into meetings at town halls, lobbying neighbors, walking the streets to sell their message and setting aside their investment dollars.
In an age of rampant individualism, it appears there are still some people wanting to make a clear statement, that for them, economics are not everything.
Their banks will tempt them with lower interest rates to retain their business, but many are choosing to pay slightly more at their community bank for something they believe in. The concept is gathering considerable momentum.
With the assistance of the Bendigo Bank, 27 communities in Victoria, including several in suburban Melbourne, have created their own home-grown banks over the past two years. Between now and early next year, a further 12 are scheduled to open and by next June, the Bendigo Bank expects to have a total of 50 community branches open.
It all started when major banks began to pull out of country towns. In many cases, local retail trade plummeted and confidence dived. People stopped investing in houses and businesses once a town lost its bank. It was a story being told in townships all over Australia.
In June 1998, Australia's first community bank opened to service the Victorian Wimmera townships of Rupanyup and Minyip, servicing each town three days a week.
People who had been forced to travel a 100km round trip to do their banking in Horsham could bank in their immediate area again. The bank was quickly successful, reaching its 12-month predicted business volumes in seven months.
With the town behind its efforts, the community bank has secured an extraordinary 70 per cent of Rupanyup's banking trade and is making a monthly profit of about $5000-$7000. Turnover at the general store is up by 25 per cent and the owners have invested in new equipment and renovations.
This is not just a phenomenon of the hurting country town. Many of Melbourne's suburbs have also lost their banks. And even in suburbs that have retained the major banks, there are moves to start community banks.
Melbourne's first suburban community bank opened its doors in Elwood just over a year ago. Since then, another four Melbourne suburbs have followed: East Malvern, Carrum Downs, Parkdale and Laverton.
There are more to come, in suburbs including Hurstbridge, Highett and Ferntree Gully.
Community banks offer a similar range of services to the major banks: home loans, personal savings and investments, credit cards, eftpos, Internet and phone banking, business loans, leasing, financial planning and superannuation. Customers of community banks enjoy the same protection for their deposits as customers of major banks, because they are fully backed by the Bendigo Bank.
These banks boast traditional face-to-face banking - the type where your teller might get to know you by name and ask how your family is. And you might even find the branch manager answering the phone over the lunch period.
But the biggest difference in Bendigo Bank's Community Bank model is that the local people own the branch. What's more, half the profits are retained locally. Profits generated by banking are now being used by these communities to fund local projects that otherwise might not have got a guernsey.
In Lang Lang, a low-income town of 900 people half way between Cranbourne and Phillip Island, the bank is looking at using its profits to help fund a
much-needed medical practice.
Community bank chairman and former VFL footballer, Max Papley, says the bank has saved the town from death.
"This town has lost so many jobs, the people were depressed, morale was low and the town was scorned by others nearby. When we got the bank, it became a catalyst for the community to work together towards a goal.
"The profits made by the bank are staying in the township of Lang Lang. We now have funds to allocate to the town from banking business," says Mr Papley.
Professor Deborah Ralston, who has carried out extensive research into rural and community banking, confirms that the closure of a bank is often a considerable blow to a community.
When a bank branch returns, it can transform a community, says Professor Ralston, who is the former director of the Centre for Australian Financial Institutions and is also a director of the Queensland-based Heritage Building Society.
Communities who have taken responsibility for attracting or creating their own financial services become empowered communities, which then take on other challenges, she says.
"The financial institution is only the beginning. When they see how successful it is, it flows on to other things. People become more optimistic about the future."
The community bank structure involves local communities owning and operating a Community Bank branch of the Bendigo Bank. After an independent feasibility study, a group of typically 200 or more people raises between $300,000-$400,000, through individual shares, to establish their own branch banking business.
This money funds a franchise fee, a licence to run the business for five years, branch fit-out of approximately $100,000, training and branch establishment, and working capital of at least $100,000. A voluntary board of directors oversees the project and ongoing running costs average between $150,000 and $300,000 a year. The board has control over opening hours, staffing levels, whether to invest in an ATM and how profits are distributed.
Bendigo Bank provides the banking infrastructure and support, carries the credit risk and provides depositor protection. The branch brings in the customer base and runs the shop-front.
Revenue is shared equally between the community and the Bendigo Bank. What is left after the community pays its branch running costs they keep as profit. They pay their shareholders a return on their investment and the rest can be distributed to community projects.
Bendigo Bank, which began as a building society in 1858 and converted to a bank five years ago, developed the community banking model in response to the continuing closure of bank branches across Australia. It is now the fastest growing segment of this bank.
Community Banking chief executive Russell Jenkins is confident that the 27 banks that have opened will succeed, though he admits that some have been slower to take off than expected.
The first 11 are now at break-even point or better and will soon be making a regular profit, he says.
"In most cases, the banks have over-achieved against their predictions. A couple have slipped a bit, but we are working with them. It will just take them a bit longer to get to break-even. Some sites may not have fully understood the work and commitment involved in mustering a customer base," Mr Jenkins says.
"The key financial goals for a branch are to get to break-even point and then to move into a position of cumulative profit. Most sites break even within 12 months and are making a profit within 18 months to two years. That is pretty good for any business, remembering that one in three small businesses fail."
Elwood was one branch that began slowly but has now picked up. After attracting enormous publicity, new accounts rolled in at about 50 a week for the first few months but then dropped back to only about six new accounts a week.
Branch chairman and local estate agent, Alastair Chisholm, admits this was a concern. "Growth was falling behind budget and that was a great worry to me because I didn't want to disappoint the local community," he says. Unlike country towns where banks had disappeared, people in the city still had other options.
"I did a street walk and discovered that people were waiting to see whether we were permanent. Now they can see we are here for the long haul, business is flooding in, with about 40-50 new accounts a week. We'll make a profit at the end of this month."
DIY Banking: How to start your own community bank in 10 steps
1) Seek initial information from Bendigo Bank.
2) Form a steering committee of people with an appropriate blend of skills, such as accountants, business owners etc.
3) Get public support for the idea. Begin raising pledges of financial support.
4) If substantial support has been raised (more than $150,000 in pledges) call a public meeting.
5) The meeting should complete fundraising for feasibility study (about $10,000) and $300,000-$350,000 to fund the cost of establishing a branch.
6) Engage an independent consultant to survey the local community about banking needs and feasibility of a community-owned branch.
7) Review the consultant's plan in the light of Bendigo Bank's financial model for community banking.
8) Report back to the community.
9) Complete fundraising to start up branch, set up branch, recruit and train staff.
10) Hold an official opening!
Community branches
* Already open In Melbourne
Laverton, Altona Meadows
Elwood
East Malvern
Parkdale
Carrum Downs
* In country Victoria
Rupanyup and Minyip
Lang Lang
Toora
Avoca
Maldon
Warburton
Nathalia
Neerim and district
Bellarine Peninsula
* New South Wales
Henty
Coleambally
Wentworth and district
East Gosford and district
* South Australia
Virginia and district
* Western Australia
Kulin
Cranbrook
Tambellup
Toodyay and district
Bayswater WA
* Likely to open by early 2001
Ferntree Gully (outer Melbourne)
Highett (Melbourne)
Hurstbridge (outer Melbourne)
Pearcedale (Victoria)
Lancefield (Victoria)
Tongala (Victoria)
South Grafton (NSW)
North Perth (WA)
Boorowa (NSW)
Oak Flats (NSW)
Cummins (SA)
West Beach (Adelaide)
Community rates
Bendigo Majors
Home loan 7.9% 8.06-8.07%
(variable)
Fees on $4 $4-$6
accounts a month a month
Interest* on term
deposits
$10,000 6.27% 5.54-6.45%
$50,000 6.45% 5.85-6.55%
*Effective interest rates at 28/9/2000
SOURCE: CANNEX
© 2000 The Age