G&C Mutual Bank Ltd.

The positive outlook on G&C reflects our view that there is a one-in-three possibility that Australian banks will face reduced industry risks in the next two years. We believe the Australian banking system's funding profile has been improving in the past 10 years on the back of growing customer deposits and falling offshore borrowings. We consider that the stronger systemwide funding metrics could be sustained despite a modest weakening in the next three years as the COVID-19-driven rise in customer deposits unwinds and the Reserve Bank of Australia's (RBA) term funding matures. The positive outlook on G&C factors in our expectation that the regulator will take timely and effective actions to mitigate risks from rapidly rising house prices and home

...We believe G&C Mutual Bank Ltd. (G&C) will continue to use strategic partnerships to grow and diversify its lending portfolio. In our view, G&C's use of third-party partnerships has reduced its reliance on residential mortgages, relative to immediate mutual authorized deposit-taking institution (ADI) peers. G&C's exposures to these higher earning assets will continue to support the mutual bank's net interest margin. G&C's capital position will continue to underpin its credit profile. We forecast the mutual bank will maintain a risk-adjusted capital (RAC) ratio of about 21% over the next two years. This supports our expectation of loan growth that is two to three times that of system over the next two years. Australia's small financial institutions, including G&C, are vulnerable to funding competition from major banks. The mutual bank operates as a price taker, given its small size relative to Australia's larger and more commercially oriented major banks. As such, G&C remains susceptible...

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