The community banks operate as franchises of Bendigo Bank. Formed in the Victorian town of Bendigo in 1858 as a local building society, Bendigo Bank converted to bank status in 1995. While Bendigo Bank is seeking to extend its network across Australia, it promotes itself as a regional bank and its headquarters are
67 It should be noted that the information on Bendigo Bank itself is limited because, while Bendigo Bank management was prepared to allow research to be undertaken in individual community banks, they would only participate to a limited extent themselves.
still located in Bendigo rather than in the traditional financial centres of Melbourne or Sydney.
The concept of “community bank” which was launched in 1998 is said to have been inspired by Rob Hunt68, General Manager of the Bendigo Bank.69 Bendigo’s corporate profile describes the arrangement as “Bendigo partnering local communities which operate franchised Bendigo Bank branches” (www.bendigobank.com.au, 24 May 2001).
The model draws to a large extent on credit union ideas and practice.70 Moreover, Bendigo has been keen to draw positive connections between it and credit unions. Owen Davies, Public Relations Manager with Bendigo observed that: “We are similar to credit unions in the sense that we are co-operative spirited. We just use a different business model” (www.bendigobank.com.au, 10 September 2001). As we shall see, in reality this claim is quite misleading. The following section sets out just how different the business model employed by Bendigo Bank is to that of the traditional credit union movement. One of the major differences between credit unions and community banks is that under the community bank model, local residents are required to provide the necessary start-up capital to establish the bank.
Bendigo Bank does not directly market itself to selected towns and suburbs;
rather it waits for residents to come to it. As Glen Kendall, Development Manager - Community Banks with Bendigo Bank explained:
All the sites that we are helping at the moment are approaches by communities to us. We will never market a community bank. We will never go to, say, Baulkham Hills and say, “You need a community bank”. What happens is that
68 The community bank model originated in the USA where it has offered smaller financial institutions an opportunity to differentiate themselves by building on local community associations and servicing the financial needs of the community. The difference between the model offered by Bendigo and the community banks in the US is that the US banks are locally owned and not affiliated with any other bank (Local Government Banking and Financial Services Taskforce 1999: 20).
69 Bendigo Bank promotes the concept of community banks as just one in a potential raft of publicly owned local enterprises. The bank is also involved in a community-based telecommunications solution (Davies, 2001).
70 The language used by Bendigo management is very similar to that used by spokespeople for the credit union movement. For example, Steve Laue, the ex-CEO of CUSCAL, described credit unions as: “The original community-focused financial institutions. Credit unions employ locally, investment is made locally, they support local community initiatives, and any surplus is retained in the local area”
(Laue 2001).
normally one person within the community will make an inquiry that they would like to start one (Interview, 21 August 2001).
The first community bank opened in June 1998 in the Victorian Wimmera towns of Rupanyup and Minyip, and by December 2003 there were 114 such banks across four states: Victoria (55), New South Wales (19), South Australia (5), Western Australia (22), ACT (2), Queensland (9), and Tasmania (2). 71 While the majority of community banks have been established in rural areas, a growing number have also been established in metropolitan areas. In Sydney the first community bank to open its doors was at Galston in March 2002. By the end of 2003, eight community banks had been established in the Sydney metropolitan area (Clovelly, Galston, Harbord, Homebush, North Richmond, Strathfield, North Epping and Turramurra) and Bendigo has also opened six of its own branches in Sydney (Belrose, Dee Why, Leichhardt, Parramatta, St Ives and Willoughby North).
Glen Kendall considered that whether a community bank was located in metropolitan or rural centres mattered little. He commented that the localities that
“really forge ahead” with the development of a community bank shared two characteristics. Firstly, they had “a pretty high feeling of their own little community”
and, secondly, in terms of the physical site they looked “like a little village”. Kendall was referring specifically to three banks being established in metropolitan Sydney at the time he was interviewed in 2001. “They are all three really like a village, which is funny for the Sydney metropolitan area” (Interview, 21 August 2001).
These village streetscapes are lined with small businesses and it is these small business traders that have the most to gain from the re-establishment of bank services in a suburb or town. Evidence indicates that bank branch closures had a particularly detrimental impact on local small business (Connolly and Hajaj 2001, EFPA Inquiry 1999, Beal and Ralston 1997). These effects include general decline in passing trade, loss of access to middle class and higher income consumers, higher retail tenancy vacancy rates, less investment, higher cash handling costs, higher insurance premiums, and increased risk of crime (Connolly and Hajaj 2001: 25-26). The House of Representatives Standing Committee on Economics, Finance and Public
71 Bendigo Bank has recently merged with the First Australia Building Society in Queensland and so now has a strong Bendigo Branch structure in Queensland.
Administration Inquiry into Regional Banking Services (1999) highlighted the increased security risks associated with having to transport large amounts of cash to and from the nearest bank branch in unsuitable vehicles, difficulties in obtaining small change, and the loss of bank staff with intimate knowledge and experience in rural banking. In addition, the NSW Local Government Banking and Financial Services Taskforce (1999: 14) noted that when people travelled to larger centres to do their banking, their shopping activity was also redirected, which could reduce the income of local retailers by 25 per cent to 30 per cent in the year of the closure.
Allan Johnson, Bendigo Bank’s Community Bank Recruitment Manager, conceded that while Bendigo is looking for broad community support, “it is fair to say that in the main small businesses are the ones that are most affected by the withdrawal of banking services and they are the ones that will create the impetus to bring services back” (Interview, 12 November 2001). An attempt to have a community bank established in the Melbourne suburb of Brunswick failed because the steering committee was not able to raise the $500,000 in start-up capital. Bendigo Bank management attributed the inability to raise the funds to a failure on the part of the relevant steering committee to secure the active involvement of local traders. Russell Jenkins, Bendigo’s Chief Manager Community Banking, observed that “the biggest key to a successful site in the early days is getting small business and traders onside”
(Boreham 2002: 32).
The Bendigo Bank community bank model is essentially a franchise arrangement with a community-based body as the franchisee. Under this arrangement, the franchisor provides the name, systems, products, marketing support, and training, while the franchisee is responsible for operating costs, including cost of staffing. The profits are shared under various arrangements between the franchisee and franchisor.
Local residents are required to form a Steering Committee whose role it is to raise awareness of the proposal and gather financial pledges in support for start-up capital of between $350,000 to $400,000.72 Once this target has been met in pledges the Steering Committee holds a public meeting at which representatives of Bendigo Bank outline procedures. If local support is still behind the project then Bendigo Bank
72 At least four of these communities have pledged significantly more than required by Bendigo in start up capital. Galston pledged $800,000, Homebush $500,000, Harbord $640,000, and Clovelly $650,000 (Wade 2001).
require the local steering committee to hire an independent consultant to conduct a feasibility study. Christine Gardiner, Chair of the Clovelly Community Bank Steering Committee, outlined what this process involved:
The feasibility study is something that is conducted by an independent company and it involves 5,000 surveys of the Clovelly area, which we letterbox dropped and we also sent out to people with a pledge from outside areas. From those surveys – they said we needed to get 600 back out of the 5,000 before they would consider it – they needed to get that community response. Actually I told them we would get 1,000 back and they said you won’t get a 1,000 back, no-one has ever got a thousand back. We got 1,030 returned – which they said was pretty amazing.
On those surveys they have to determine if there will be about $30 million dollars worth of banking business in deposits and people changing over their mortgages, etc. Ours showed over $100 million (Interview 7 June, 2001).
The results of such locally-funded feasibility studies are fed into Bendigo Bank’s community bank model to produce a three-year business plan. If the business appears viable Bendigo will support the development of a franchise. Then another public meeting is held and the interested residents vote on whether or not to proceed. If endorsement is given, a prospectus is released and share subscriptions are invited from the local residents. The shareholding is held with the local finance company that enters into the franchise arrangement with Bendigo. Bendigo Bank is not a shareholder in the community banks but it expects a minimum of 250-300 shareholders in each community bank (Interview, Allan Johnson, November 2001).
Bendigo does not want ownership of the community banks concentrated in the hands of a few individuals.73 In this respect, they are drawing directly on the credit union model, where each member is entitled to one vote. In the community banks each shareholder is entitled to only one vote regardless of the size of their shareholding.74 Generally this process takes between eight and 12 months. Once the capital is raised, Bendigo provides the banking infrastructure, including the use of Bendigo’s banking licence, products and staff training. The community bank pays Bendigo 50 per cent of its gross income. While Bendigo Bank manages and bears the prudential and credit
73 The NSW Local Government Banking and Financial Services Taskforce (1999: 21) investigated the possibility of local councils purchasing franchises and met with an unfavourable reaction from Bendigo Bank.
74 It was written into the prospectus for one of the community bank finance companies that “no individual member may control or own more than 10 per cent of the shares in the company” (Ku-ring-gai Financial Services Ltd Prospectus, 2003: 24).
risk, any business and operational risks are borne by the local management committee.
After meeting operating costs and paying 50 per cent of gross profit to Bendigo, 20 per cent of any remaining profit is paid as a dividend to shareholders and the other 80 per cent is retained for local development programs, as well as to meet any ongoing working capital requirements (Interview Glen Kendall, 21 August 2001). It reportedly takes at least two years of operation before a community bank can begin posting consistent profits and pay a dividend to its shareholders. In June 2001 it was reported that 12 of the then 45 community bank branches were posting monthly profits and three had paid a dividend back to their shareholders (Murphy 2001). It is essential that community banks become profitable because one of the terms of the franchise agreement is that the franchise agreement can be terminated if the “franchise operation is not profitable” (Ku-ring-gai Financial Services Prospectus 2003: 22).
This is very different to the way in which credit unions have re-established bank branches under the CreditCare program, where the co-operative nature of credit unions means that the credit union commits to subsidising an ‘unprofitable’ branch in order to ensure the locality a financial service. This difference is largely due to the fact that credit unions as co-operatives are not-for-profit organisations, whereas Bendigo Bank must report to shareholders.
The management committee of the community bank decides upon the percentage allocated to ‘community’ work and the projects that will be funded. The emphasis is on putting funds back into the local area to develop further the area’s prospects. For example, in Henty, NSW, a nursing scholarship has been established in order to retain nursing services at the local hospital and at Lang Lang in Victoria the money has been used to open a business centre (Wade 2001). In its fourth year in operation, Henty Community Bank Branch set aside $150,000 of its branch profits for local service organisations. The Board allocated $100,000 to the Henty Bowling and Golf Club to enable the organisation to improve the auditorium and kitchen area (www.communitybank.com.au, 13 April 2003). 75 A number of the community banks report funding scholarships for local schools and colleges and others report
75 The Henty Community Bank also services the town of Pleasant Hills. This town has taken the community bank concept and used it to open the Pleasant Hills Community Hotel. Perhaps the prospect of a town with no pub has wider social implications than a town with no bank.
sponsorship of local sporting clubs (www.communitybank.com.au, 13 April 2003).
The oldest community bank that services the townships and surrounding areas of Runanyup and Minyip, has established a Community Development Fund of $30,000.
The bank claimed that the “Community Development Fund will improve the quality of life for people living in the areas of Runanyup and Minyip”
(www.communitybank.com.au, accessed on 13 April 2003). However, rather than the level of funding received by each area being linked to local need, it is tied directly to the level of customer support it receives from each community. The more business the local residents bring to the bank the more support they will receive. In the case of the Runanyup/Minyip Community Bank the local development fund operates in effect as a customer reward scheme.