Australia’s mutual banks, building societies, and credit unions delivered a 14.5% increase in operating profit before tax, rising to $844.1 million in FY25, according to KPMG’s Mutual Industry Review 2025. which examines the sector’s financial performance and regulatory challenges.
Sector confidence has also rebounded, with 79% of leaders optimistic about the next three years, up from 60% last year.
This profit growth was achieved despite margin pressure. The mutual sector’s net interest margin fell 23 bps to 2.28%, offset by solid balance sheet expansion. Deposits grew 8.7% to $144.3 billion, non-interest income rose 10.7%, and lending increased 8.2% to $145.8 billion.
However, rising costs pushed the cost-to-income ratio up 135 bps to 78.15%, highlighting ongoing efficiency challenges.
Mutual banks also continued strengthening their capital position. The capital adequacy ratio lifted 28 bps to 18.31%, giving institutions greater capacity to invest in technology, compliance, and member-facing improvements.
The timing aligns with APRA’s 2025 shift toward more intensive supervision around cyber, resilience, and operational risk, prompting many mutuals to accelerate digital capability and capital strengthening.
Fintech competition is also intensifying, with digital challengers expanding in unsecured lending and savings products, increasing pressure on mutuals to accelerate digital upgrades.
Darren Ball (pictured), KPMG national sector leader for mutuals, said the sector is navigating both opportunity and structural pressure.
"Mutual banks in Australia find themselves at a crossroads," Ball said. "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."
He said these challenges are driving a consolidation wave across the mutual sector as organisations seek to “pool resources, streamline operations, and strengthen their ability to invest in technology and innovation.”
The pace of mutual sector consolidation is picking up. The mutual sector completed seven mergers in FY25, compared with four the previous year. Nearly one-third of Mutuals expect to be involved in a merger in 2025, with consolidation increasingly viewed as a competitive necessity.
Ball also pointed to global forces shaping industry strategy:
"In a world of unprecedented global challenges, such as the role of tariffs, international conflict and erosion of trust in established organisations there has never been greater uncertainty."
He said mutual banks that embrace technology and leverage their community connection, purpose, and emerging AI capability “will continue to grow sustainably.”
KPMG’s survey identified four top strategic priorities for mutual banks over the next three years:
Key growth drivers:
– better product pricing (64%)
– improved customer service (64%)
– tailored member-centric products (61%)
Top risks: IT and cyber (50%), funding and margin management (36%), competition (25%).
Major technology challenges:
– cost reduction (68%)
– innovation (57%)
– piloting emerging technologies (46%)
Cyber readiness has sharply improved, with 89% now feeling prepared, up from 76% last year.
Nearly 29% expect to participate in merger activity in 2025, with consolidation positioning Mutuals to compete more effectively with major banks, which 71% identified as their greatest competitors.
Most leaders expect rates to stay stable or fall. Only 14% anticipate a slight increase of 2–5 bps, while one in five expect a strong decrease of more than 10 bps.
Member engagement remains the mutual sector’s strongest differentiator
KPMG notes that member loyalty is key to maintaining competitiveness. Effective retention strategies include:
– personalised communications
– loyalty-based offers
– proactive financial support
– blending digital convenience with human connection
But resource constraints make large-scale transformation more complex. Many mutuals lack the specialist digital and data skills required for advanced change programs.
Ball said the challenge isn’t whether mutual banks should adopt AI, but how.
"The question is not just how and where to adopt AI, but how to do it in a way that amplifies the strengths of the sector, through trust, collaboration, and a shared commitment to innovation," he said.
Ball said successful mutual banks will leverage data more effectively to anticipate member needs and compete with banks and fintechs.
"Members expect digital-first, seamless experiences, but also value the personal, community-focused ethos of mutuals. The focus must be on striking the right balance in digitisation with maintaining the 'human touch'," he said.
The full report is available at kpmg.com.au.
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