Mutuals profits rise amid sector challenges: KPMG report highlights growth and merger trends

By Newsdesk

November 27 2025
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Australia's mutual banks, building societies, and credit unions, collectively known as Mutuals, have reported a significant rise in profits for the 2025 financial year, according to KPMG's 38th Mutual Industry Review. The review, which provides an annual analysis of the performance and trends within Australia's financial services sector, revealed a 14.5% increase in operating profit before tax, reaching $844.1 million. This marks a substantial improvement from the previous year's 0.77% growth, highlighting a period of robust financial performance for the sector.

Mutuals profits rise amid sector challenges: KPMG report highlights growth and merger trends

Despite a decrease in net interest margins by 23 basis points to 2.28%, Mutuals have managed to maintain strong growth, with deposits increasing by 8.7% to $144.3 billion and non-interest income rising by 10.7% to $325.5 million. Lending also saw a healthy increase of 8.2%, reaching $145.8 billion. However, the sector faced rising costs, with the cost-to-income ratio climbing by 135 basis points to 78.15%.

Darren Ball, KPMG's National Sector Leader for Mutuals, commented on the current state of the sector, saying, "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." Ball highlighted the trend towards mergers as a strategic response to these challenges, noting that "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."

Optimism within the sector has reached a three-year high, with 79% of survey respondents expressing confidence in the growth prospects for Mutuals over the next three years. This is a notable increase from the 60% reported in 2024 and 73% in 2023. The survey identified key priorities for Mutuals, with maintaining profitable and sustainable growth being the top concern for 86% of respondents. Key contributors to this growth include better product pricing, enhanced customer service, and the introduction of new, tailored products.

Digital transformation emerged as the second priority, with 39% of respondents emphasising its importance, up from 32% in 2024. The focus on technology is driven by the need for cost reduction, innovation, and the piloting of emerging technologies. Ball remarked, "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."

Mergers and acquisitions are also a significant focus, with 32% of respondents anticipating involvement in merger activity during 2025. This consolidation is seen as a way to better compete with major banks, which are perceived as the greatest competitors by 71% of respondents. Managing margins and interest rates is another priority, with most respondents expecting interest rates to remain stable or decrease over the next three years.

The outlook for Mutuals is heavily tied to member engagement, which is viewed as a key differentiator. The sector aims to go beyond standard offerings to deliver personalised, responsive services that enhance member satisfaction and loyalty. Technology will play a crucial role in achieving these objectives, with strategies aimed at reducing customer friction, automating workflows, and improving digital interfaces.

Ball emphasised the importance of balancing technological advancements with the sector's community-focused ethos, stating, "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 added, "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'."

As Mutuals navigate the challenges and opportunities of the current financial landscape, the KPMG report underscores the importance of strategic mergers, technological innovation, and a strong commitment to member engagement as key drivers of future growth.

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