Mutuals fall further behind

Australia's mutual financial institutions performed poorly during the 2013/14 financial year, compared with the major banks, according to a KPMG report.

In aggregate, mutuals struggled to hold their own in the highly competitive home loan market, they had limited access to cheap wholesale funding and their costs rose steeply as they invested in new technology.

The mutual sector is struggling with cost pressures. The average cost to income ratio has risen from 68.8 per cent to 78.7 per cent over the past five years

Net interest income over the 2013/14 financial year was up 2.7 per cent, compared with growth of 6.3 per cent for the majors.

Non-interest income fell 1.4 per cent, while it increased by 9.4 per cent for the majors.

Net profit was down 1.5 per cent, compared with an increase of 10.5 per cent for the majors.

Assets grew three per cent, while they grew 8.4 per cent for the majors.

Deposits grew four per cent, compared with growth of 7.9 per cent for the majors.

Member numbers increased by 0.1 per cent.

Mutual banks did better than the sector overall. KPMG said the value of the brand was becoming clear after two years of operation.

KPMG said the results suggested that "maintenance of the status quo was not an option."

KPMG recommended to the Financial System Inquiry that it look at alleviating the burden on mutuals by applying concessional risk weights to their low-risk lending.

It said mutuals needed to look at a shared services approach to their businesses, shared investment in technology and rationalisation of their branch networks.