Abacus Lobbying Priorities

1. Abacus Lobbying Priorities AM Institute Risk Forum – Barossa Valley, November 2012 Mark Degotardi, Head of Public Affairs Abacus

2. Today • Identify some challenges in the operating environment • What on earth is lobbying anyway? • Identify some regulatory risks • Abacus’ main focus for 2013 • Risks and opportunities for mutual ADIs • Questions

3. The Operating Environment

4. Strong fundamentals Estimated percentage of population by state who are members of mutuals 26% 18% 7% 30% 28% 10% 8%

5. Strong fundamentals

6. Strong fundamentals

7. Customer Satisfaction at 31 October

8. Key providers in bank dominated market Source: APRA & RBA

9. But we have changed over time Mutual Sector – Distribution of ADIs by asset size ($bn) Source: 2011 Mutual Sector Annual Reports

10. Some reality checks in a tough market • Growth • below system for assets and deposits • At system for loans

11. Some reality checks in a tough market • Growth • below system for assets and deposits • At system for loans • Profitability • constrained (ROA at 0.56% vs 0.70% a year ago) reflecting margin pressure (10 bps decline) • cost/incomeincreasing (CUFSS group up 58bps, includes 81bps increase for $1bn+ group)

12. Our environment - market Source: APRA Note: Mutual Banks Bankmecu, Defence Bank, Heritage Bank , QT Mutual Bank, Teachers Mutual Bank, and Victoria Teachers Mutual Bank excluded from the analysis.

13. Our environment - market Source: APRA Note: Mutual Banks Bankmecu, Defence Bank, Heritage Bank , QT Mutual Bank, Teachers Mutual Bank, and Victoria Teachers Mutual Bank excluded from the analysis.

14. Some reality checks in a tough market • Growth • below system for assets and deposits • At system for loans • Profitability • constrained (ROA at 0.56% vs 0.70% a year ago) reflecting margin pressure (10 bps decline) • Funding under significant pressure • Major banks take share of deposit funding above 50% • Term Deposits account for almost half of retail deposits at major banks • Majors estimate further increase in funding costs for retail deposits

15. Our Environment - market

16. Lobbying and Politics

17. Faith in Political Leadership In my lifetime, we’ve gone from Eisenhower to George W Bush. We’ve gone from John F. Kennedy to Al Gore. If this is evolution, I believe in twelve years, we’ll be voting for plants. Lewis Black

18. Our Environment – politics • Partisan divide hampers genuine policy work • Government likely to hold through mid/late 2013 but Gillard and Abbott both under pressure • Hockey, Robb havecommitted to FSI • Government annoyedat our calls forfurther reform(but this is OK) • Public apathy?

19. Lobbying – part of democracy?

20. Lobbying – slightly stinky?

21. Basic principles • Influencing decision makers • Recognition • Accommodation • Promotion • Risk reduction • Support • Solve problems

22. Recognition “Most importantly, as mutual organisations, credit unions and building societies always put their members first. They are not-for-profit lenders — so they put their profits back into cheaper interest rates, lower fees, and better customer service.” • Deputy PM, December 2010

23. Strategy & tactics • Engage at all points in the policy development process: • Public debate • Consultations, reviews and inquiries • Legislation and regulation • Implementation • Oversight of regulators • Elections: a chance to extract commitments, lift profile

24. What’s the message? • Decide the message; repeat the message • Political cliché that’s true: when the politicians and reporters are so sick of hearing something they want rip their own ears off, most of the voters are just picking it up • You’re the expert on your industry • Conflict sells – but avoid where possible • Always frame an issue from the consumer perspective; big banks can’t credibly do this (but they’re trying!)

25. Take your chances • Public debates • Be available to media • Parliamentary inquiries • Govt policy development • Regulator policy consultations • Brief the Opposition – they’ll be the next Govt • Connect local CUBS with local MPs • “How can we help?”

26. The Regulatory Environment

27. Our Environment – regulation • Industry “exhausted” • CFR holds enormous sway and has written off concepts on RMBS, new guarantees, AOFM mandate expansion • Budget constraints impact even mild revenue issues making substantial reforms even harder

28. Competition: regulatory story (so far) • Positives: • Treasurer promotion of mutuals since 2010 • Banking competition policy centred on mutuals • Legislative recognition (eg covered bonds) • Deposit guarantee maintained at upper level proposed • AOFM support ($1.66bn utilised by mutuals) • FSAC representation, face to face meetings for larger members • Realities • Account switching, exit fee bans limited impact • AOFM boost limited to large mutuals,+B note issue • Major banks now dominate market on both sides • Significant proposals (eg Canadian style RMBS support, expansion of guarantee for fee, AOFM mandate) rejected • Limited signs of member appetite on covered bonds (to date) • Regulator influence and dominance

29. Lobbying Agenda – positive traction Regulatory Wins • DG at upper range of $250K • GST RITC Item 16 restored, saving $1.6M annually • APRA public commitment to work on BIII capital issues • Basel III liquidity • FoFA carve-outs expanded to benefit mutual ADIs • Less prescriptive training rules for ADIs on credit • Changes to unclaimed monies bill More to do... • Secure concessions on BIII capital, liquidity • Mutual friendly capital supported and encouraged • Legislative fix on ASIC TD interpretation & BDPs • Position for “Wallis Mk II” • Positive Credit Reporting • Franking Credits & mutuals

30. Regulatory Focus - 2013 • Basel III capital

31. Regulatory Challenges Basel III and capital framework • Capital impacts for mutuals • Tier 1 Capital definitions • Non-viability clauses • Accelerated timetable • Abacus response

32. Basel III - capital Senate Economics Committee 9 August 2012

33. Regulatory Focus - 2013 • Basel III capital • Financial System Inquiry • Liquidity Standard • Review of APS120 • Basic deposit product definitions • Comprehensive credit reporting • Payments reforms – EFTPOS, governance • FATCA • Taxation including franking credits • Bankruptcy

34. Positioning – more to do • Media profile is growing, media is changing • Recent release of DAE report generated TV, radio, print nationally • Increased focus on partnership with members – “talent” • Still relatively unknown, hugely outgunned

35. Media presence underpins our advocacy Building a balanced approach to Customer Owned Banking

36. Risks and Opportunities

37. Competition – not going away

38. The Perfect Storm

39. Have we got the balance right?

40. Cooperation?

41. Do we?

42. Sometimes impossible becomes reality

43. Thank you