HERITAGE SUBMISSION TO SUPPORT DECENTRALISATION AND REGIONALISATION

Heritage Bank - background

Heritage Bank is ’s largest customer-owned bank and one of the three largest mutual ADIs in the country.

Heritage’s history goes back 142 years to its beginnings as a founded in in 1875, making it one of the oldest mutual financial institutions in the country. Heritage has grown to now have more than $9 billion in assets, more than 300,000 customers, 800 staff (including 470 in the Toowoomba region), and 61 branches across southern , as well as staff based in Sydney, Melbourne, Adelaide and Perth. Heritage is a national player in the mortgage market, with home loan customers around Australia sourced via a network of mortgage broker partners.

The Mutual Bank Difference

Heritage Bank has a proud 142 year history as a mutual organisation. Mutuality is not just a corporate structure, it is a business philosophy. As a mutual, Heritage has always prided itself on putting customers at the centre of its decision-making, made tangible via its commitment to offering highly competitive interest rates, low fees and charges, and support for community activities.

That commitment means delivering real financial benefits to Heritage customers. In fact, analysis by research company CANSTAR has shown our customers were more than $208 million better off over the last five years through banking with Heritage rather than the (based on the average pricing/fees across lending and deposit products).

Not only do our customers benefit financially, they also have a more satisfying banking experience. For example, at the end of last financial year, our Roy Morgan MFI customer satisfaction score was 94.3% - more than 13% higher than the average score of the four big banks in Queensland. Also at that time, our Roy Morgan net promoter score was 38.4, indicating a strong likelihood of customers recommending Heritage to others. The average score of the big four banks was just 6.6.

These statistics provide a compelling indication that the mutual sector offers banking customers distinct and tangible benefits, which should not only be protected but encouraged. However, we now find ourselves at a tipping point where lack of access to capital is putting the capacity of mutuals to continue providing these benefits to customers under enormous pressure.

Challenges of being a National Bank – based regionally

While Heritage is rightly proud of its history, it is also actively evolving to meet the changing needs of its customers and the modern banking environment. Heritage is pursuing a deliberate growth strategy to position itself for ongoing success in an increasingly digital world. The bank has initiated a multi-year program to transform Heritage into a digitally-led institution that will continue to meet changing customer needs. Heritage historically developed as a branch-based bank that added a digital presence. It is now shifting to think of itself more as a digital bank with a branch presence.

That necessitates significant investment in technology and in improving our processes. Not only must Heritage provide first-class customer-facing services, such as its website and mobile phone app, but it must also streamline back-office processes. Digital technologies provide amazing opportunities to eliminate paper-based processes and to simplify interactions with customers. Heritage must continue reshaping our business to take advantage of these opportunities.

As Australia’s largest customer-owned bank, Heritage has national ambitions and is targeting growth right around the country via its mortgage broker network. Better digital systems and highly-skilled staff will help it do that. Last financial year, 50% of Heritage’s loans (more than $1 billion) was sourced via mortgage brokers, and that channel is extremely important to Heritage’s future.

Heritage increasingly considers itself to be a nationally important company that just happens to be based in a regional area, rather than “merely” a regional business.

That digital and national focus does not mean Heritage is diluting its commitment to excellence in customer service in any way. It does however, mean that Heritage needs to attract a workforce that shares its passion for customer services and digital transformation.

To achieve that transformation, Heritage must be able to attract high-quality employees from across the country to live and work in Toowoomba. Heritage is in direct competition with the capital cities of Australia, and other large regional centres, to secure the calibre of staff required to achieve its goals.

While many of the roles Heritage offers are exciting and well sort after roles in the industry, our commitment to having our head office regionally based in Toowoomba does present recruitment and retention challenges, including;

. A perceived lack of advancement opportunities or career options. Often very limited chance for promotions at their employer, or few other employers to choose from

. A move to a region means not just finding one job but two, with spouses looking for employment as well

. Lack of access to social support, moving away from family, difficulty breaking into new social networks

. Families often look for greater educational options for their children especially when they get to secondary school age

. Families also looking for availability of other services – e.g. a couple looking to start a family may not want to stay somewhere where there is not adequate neo-natal care

. Regions suffer from becoming nurseries, have no problem attracting graduates or starters, then train them only to see them move away to the bright lights of the city

Fortunately, Toowoomba does have several regional advantages that mitigate some of these challenges, including, health care infrastructure, primary, secondary and tertiary education services, a broad and strong economy, the new road infrastructure under construction and the recently completed Wellcamp Airport.

The completion of the airport has in fact been a major factor in the successful recruitment of a number of Heritage Bank’s senior executive and management.

Peter Lock Chief Executive Officer Heritage Bank Limited