Almost one third of Australia’s mutual banks, building societies and credit unions are expected to merge in 2025, according to KPMG.
The professional services firm said mergers and acquisitions were the equal third priority of the mutual financial services organisation after maintaining profitable and sustainable growth and digital transformation.
Releasing its Mutuals Industry Review 2025 report, KPMG said 29% of the mutual banks it surveyed expected to be involved in merger activity in 2025.
“Consolidation is reshaping the landscape, positioning mutuals to better compete with major banks, seen as the greatest competitors by 71% of respondents, while preserving their customer-owned ethos,” the firm wrote in the 38th edition of the annual survey, which examines the performance and trends of mutuals in Australia’s financial services industry.
KPMG National Sector Leader for Mutuals, Darren Ball, said mutuals in Australia found themselves at a crossroads.
“While profits have risen, persistent margin pressure, rising regulatory expectations and the need to modernise member experience are making it increasingly difficult for mutuals to compete at scale,” Ball said in the report.
“These challenges are driving a wave of mergers across the sector, as organisations seek to pool resources, streamline operations, and strengthen their ability to invest in technology and innovation.”
Their top priority, selected by 86% of respondents, was maintaining profitable and sustainable growth through better product pricing (64%), improved customer service (64%), and customer centricity and the offering of new, tailored products (61%).
Risks included information technology and cyber risk (50%), funding sourcing and margin management (36%) and competition (25%).
The second priority (39% - up from 32% in 2024) was digital transformation, with key challenges in the next three years including cost reduction (68%), innovation (57%) and piloting emerging technologies (46%).
The other equal third priority was managing margins and interest rates (32%).
KPMG said the mutuals increased operating profit before tax by 14.5% to $844.1 million in the 2025 financial year, and their optimism was at a three-year high, with 79% of them feeling confident about three-year growth prospects, up from 60% in 2024 and 73% in 2023.
The increase was achieved despite a 23 basis point drop in net interest margin to 2.28% and a 135 basis point increase in their cost-to-income ratio to 78.15%.
An 8.7% lift in deposits and 10.7% growth in non-interest income helped drive loan growth of 8.2% to $145.8 billion.
