APRA Expresses Concern Over Viability of Smaller Mutual ADIs
The Australian Prudential Regulation Authority (APRA) has raised concerns over the potential sustainability of smaller mutual Authorised Deposit-taking Institutions (ADIs). APRA member, Therese McCarthy Hockey, voiced these concerns during the 2026 COBA CEO and Directors Forum. Her comments highlighted a shrinking sector, with mergers and acquisitions increasingly common among mutuals.
Declining Numbers of Mutuals
McCarthy Hockey reflected on the significant decrease in the number of customer-owned banks in Australia since APRA’s inception. “At the start of 2025, there were 56 customer-owned banks in Australia, down from more than 220 back in 1998, APRA’s first year of operation” she said. This number fell to 52 following four mergers in the past year, and it is expected that this trend will only accelerate in 2026.
While APRA does not have a target in mind for the ideal number of mutuals, McCarthy Hockey acknowledged the trend. She clarified that APRA does not believe that ‘big is good, small is bad’, noting that some larger banks, including those outside the mutual cohort, were also facing challenging operating conditions. Conversely, several smaller banks are not only surviving but thriving.
The Double-Edged Sword of Size
McCarthy Hockey further emphasized that size isn’t everything in banking, and there would always be a place for local knowledge, personal relationships, and reinvestment into communities. She acknowledged the outperformance of the mutual sector compared to the wider banking sector in many areas, attributing it to the appeal of the customer-owned business model.
However, she also pointed out the importance of scale. Many mutuals are seeking financial benefits by merging with like-minded partners. This trend is expected to continue in 2026, increasing the gap in the mutual sector. The largest mutuals stand to benefit from economies of scale, consolidation tailwinds, and more efficient cost structures. However, some of the smallest mutuals may face struggles with high cost-to-income ratios and declining profitability.
The Tough Reality for Some Mutuals
In a more direct warning, McCarthy Hockey indicated that in some dire cases, smaller banks might not be seen as attractive merger partners. This is because the costs associated with merger and integration could outweigh the prudential and member benefits, leaving these banks with few options to arrest their decline. The implied message was clear – small mutuals should consider merger options soon or risk becoming unviable.
APRA’s concerns underscore the challenges faced by smaller mutuals in a rapidly changing banking landscape. With the trend of consolidation set to continue, it is clear that these institutions will need to adapt swiftly to ensure their survival.
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