By Richard Braddell
Between The Lines
A financial institution doesn't have to have billions of dollars in assets to be a success.
Taranaki's TSB Bank amply demonstrated the point this week, showing it could go from strength to strength in spite of being small, in the last year growing assets by a quarter by moving outside its Taranaki base using low-cost telephone banking.
TSB is not alone in demonstrating that a small operation can do well.
Southland Building Society has been a respectable performer over a number of years, and even the once-troubled PSIS has made respectable profits.
Each of these operations is very different. TSB is a community-owned retail bank, Southland a building society and PSIS owes its origins to the public service as a credit union.
The common factor is that each has its niche and very loyal customer bases. TSB enjoys an almost unassailable dominance in the retail market in Taranaki, while stalwart Southlanders would have no truck with Westpac when it offered them windfall gains in a bid to take over their building society a decade ago.
Much of the PSIS customer base, meanwhile, carries over from the heyday of the public service, and it retains appeal to people who want nothing to do with multi-national banks.
The small operators also have another advantage that spins through to their bottom line: their mutual or community ownership puts them under less pressure to return dividends to their owners.
TSB, which has an embarrassingly high level of deposits, enjoys one of the highest net interest margins in the industry, helped by the number of customers who park money in low interest deposit accounts while forgetting to take advantage of higher yielding term deposits.
But a recurrent theme with the small operators is that apart from the attraction of being locally owned, they can offer a very high level of personal service.
Telephone banking customers with TSB say its call centre operators often remember them with a familiarity that never happens with the big banks.
But small financial institutions are not immune from the forces of change. As Southland's chief executive Ross Smith says, the society has no choice but to start offering cheque accounts, credit cards and telephone call centre service, starting this year, or get left behind.
But do well as they might, the three institutions mentioned are not going to shake the market just yet. Compared with the $90 billion in assets held by New Zealand's top three banks, they control little more than $2 billion between them.
So, for the most part, the small fry will be left to play in their own pool because even with exceptional growth, it would be many years before they might pose a realistic threat to their bigger brothers.
