Mergers remain on agenda for mutual banks

While the proposed merger between Police & Nurses Limited (PNL) – which comprises P&N Bank and BCU Bank – and Great Southern Bank (GSB) ultimately failed, credit ratings provider S&P Global Ratings said it expects mutual banks “to keep seeking merger opportunities to support their strategic goals and longer-term viability”.

“Despite the cancellation, we continue to see a compelling rationale for the further consolidation of the mutual banking sector,” a spokesperson added.

The merger was abandoned after being deemed not to be in “the best interests of its customers”, marking PNL’s second unsuccessful merger attempt in as many years.

PNL chair Gary Humphreys said: “While we will not be progressing this opportunity, we assessed the potential merger holistically and I am confident we have made the right decision.”

However, as the dust settled on the news that one merger had been dismissed, an agreement on another merger had already been announced.

On Thursday evening (29 January), Family First Bank members voted in favour of a merger with Beyond Bank Australia, following a proposal first put to members in August last year. The vote returned 89.6 per cent support, with the merger set to take effect from 1 March.

The combined group will have approximately 340,000 members and manage more than $11.3 billion in assets.

Customer Owned Banking Association (COBA) CEO Michael Lawrence said merger decisions in the sector are made with customers front of mind.

“Customer-owned banks regularly make strategic decisions in the best interests of their customers, including whether or not to proceed with a merger,” he said.

“While mergers between mutuals can provide additional scale to support sustainability and competitiveness, careful consideration will be given to whether a proposed merger will ultimately be the right outcome for members.

“Customer-owned banks are not owned by investors, so when they do come together through a merger, the decision has been made with a people-first ethos and a commitment to deliver better outcomes for customers, team members and the wider community.

“Importantly, any merger between customer-owned banks can only proceed when voted on and approved by their customers.”

To merge or not to merge

For some mutual banks, mergers may not only be beneficial, but necessary.

The sector has steadily grown its market share in recent years. While mutuals accounted for around 3 per cent of lending a decade ago, that figure has increased to 5 per cent. In 2025, lending grew by 8.2 per cent to $145.8 billion, according to KPMG.

Data from an Agile Intelligence Broker Pulse survey shows 4 per cent of brokers used P&N Bank, 5 per cent used Teachers Mutual Bank, 2 per cent used Beyond Bank, while Great Southern Bank recorded the highest usage among mutuals at 6 per cent.

For brokers, however, turnaround times remain a key consideration. In December, Teachers Mutual Bank reported an average turnaround time of nine days, down from 12 days the month prior. P&N recorded six days, Beyond Bank five days, and Great Southern Bank six days.

Newcastle Permanent was the longest in the survey at 16 days, compared with an average of 4.8 days for the major banks.

“Brokers tend to stay away from mutuals – not because we don’t like them. If anything it’s the opposite,” said Graeme Salt, mortgage broker and director of Origin Finance.

“The risk with mutuals is service level agreements – we need to be sure that a loan application will be approved in time.

“Merging mutuals will help them get scale. But they probably lose their unique selling point with customers in the process.”

Regulators have also highlighted the pressure on smaller institutions to adapt. In March 2025, Australian Prudential Regulation Authority (APRA) executive board member Therese McCarthy Hockey warned that mutuals that “fail to evolve could find themselves struggling to stay relevant”.

She identified mergers as a potential pathway to achieving greater scale and resilience.

“APRA believes there is scope for mutual banks to explore the possibilities of pooling resources or expertise. We would encourage the sector to look at these types of innovative ideas provided they can manage the risks and potential conflicts,” Hockey said.

APRA has previously cautioned that smaller mutuals may struggle to keep pace with technological change, particularly as digital banking expectations continue to rise.

“Mutual banks and credit unions are disproportionately burdened by the increasing cost and resourcing pressures of regulation, which can also serve as a contributing factor for merger decisions,” Lawrence said.

“Customer-owned banks provide a distinct and essential alternative to the traditional investor-banking model, delivering value and purpose to customers and the diverse communities they serve. However, for the mutual model to thrive, it requires a regulatory framework that actively promotes competition.”

Another factor influencing merger activity is the Australian Competition and Consumer Commission’s new merger control regime, which came into effect on 1 January and introduces mandatory notification requirements for mergers above certain thresholds, with the ACCC acting as the approval decision-maker.

The regime also brings new filing fees – ranging from $8,300 for a notification waiver to up to $1.60 million for a phase two review – with the government saying the changes will streamline approvals for most mergers, while shifting regulatory costs from taxpayers to merging parties.

[Related: Brokers shift towards longer-term loan structures]