Mutuals profits and optimism on the rise, but challenges drive mergers across the sector

27 November 2025

Australia’s Mutual banks, building societies and credit unions (the "Mutuals") saw overall operating profit before tax increase by 14.5% to $844.1 million for the 2025 financial year, according to KPMG’s 38^th Mutual Industry Review, the annual survey examining the performance and trends of Mutuals in Australia’s financial services industry. Optimism was at a three-year high, with 79% of respondents feeling confident about the 3-year growth prospects for Mutuals (compared to 60% in 2024 and 73% in 2023),

This increase was achieved despite a 23bps decrease in net interest margin to 2.28%, driven by an 8.7% growth in deposits and a 10.7% increase in non-interest income. This has enabled continued strong loan growth of 8.2% to $145.8 billion (2024: $134.8 billion). Despite this, continued cost increases experienced during the year has resulted in the Mutuals’ cost-to-income ratios increasing by 135bps to 78.15% (2024: 76.8%).

The sector’s capital adequacy ratio continued its recent trend, increasing by 28bps to 18.31% (2024: 18.03%) providing the ability to continue to invest in technology to enhance resilience, meet future regulatory requirements and modernise and simplify core member-facing processes.

Darren Ball, KPMG National Sector Leader, Mutuals, commented: "Mutual banks in Australia find 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. 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."

"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. Mutual banks that embrace the role of technology in meeting these challenges and see opportunities through leveraging their strong connection to the community, sense of purpose, and ability to embrace the possibilities of generative AI will continue to grow sustainably," he added.

Key financial results for the mutual sector for the 2025 financial year are:

• Operating profit before tax increase grew by 14.5% to $844.1 million (2024: up 0.77% to $737.1 million)
• Lending increased by 8.2% to $145.8 billion (2024: $134.8billion)
• Deposits grew by 8.7% to $144.3 billion (2024: $132.8 billion)
• Non-interest income increased by 10.7% to $325.5 million (2024: $294.1 million)
• Net interest margin decreased 23bps to 2.28% (2024: 2.51%)
• Cost-to-income ratio increased by 135bps to 78.15% (2024: 76.8%)
• Average capital adequacy ratio increased by 28 bps to 18.31% (2024: 18.03%)
• Increase of $6.8m in credit provisions to $185.8 million (2024: $179 million)
• 7 mergers completed (2024: 4).  

Key priorities for Mutuals

The survey found Mutuals have several key priorities as they look toward the future:

1. The top priority, selected by 86% or respondents, is maintaining profitable and sustainable growth. The top contributors to growth will be better product pricing (64%), better customer service (64%) and customer centricity and offering new, tailored products (61%). On the risk side are IT and cyber risk (50%), funding sourcing and margin management (36%) and competition (25%).
2. The second priority (39% - up from 32% in 2024) is digital transformation. The key technology challenges identified in the next three years include cost reduction (68%), innovation (57%) and piloting emerging technologies (46%). 89% now consider themselves prepared for a cyber event (2024: 76%).
3. The equal third priority is Acquisitions & Mergers (32%), with 29% anticipating being involved in merger activity during 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.
4. The other equal third priority is Managing margins and interest rates (32%). Most respondents see interest rates staying put or decreasing over the next three years, with just 14% anticipating a slight rise of 2-5 bps. One in five expect a strong decrease of over 10 bps.
    

Outlook

Member engagement is the true differentiator for Mutuals. Retention strategies must go beyond standard offerings to deliver personal, responsive services: loyalty- based offers, tailored communications and proactive support that keep members connected and satisfied.

Technology will clearly be key to achieving many of the strategies outlined to improve customer experience and costs, such as reducing "points of friction" at the customer level (86%), automating workflows (61%), improving web design (50%) and introducing digital authentication (43%). But having smaller teams means Mutuals often lack the specialist digital, data and transformation skills needed for complex change programs.

Darren Ball said: "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. To do this, Mutuals need to better leverage data to understand member needs and anticipate future expectations. They must compete with well-capitalised banks and fintechs that can invest heavily in technology and customer experience.

"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.

About KPMG’s Mutual Industry Review 2025

The survey examines the performance and trends of Mutuals in Australia’s financial services industry for the 2025 financial year. The mutual sector covers Australia’s mutual banks, building societies and credit unions. The survey also considers the responses to a qualitative questionnaire covering the risks, challenges and opportunities facing the industry, and includes a number of articles by KPMG authors.

View the full report – Mutuals Industry Review