“The magic number for Australian mutual lenders could be less than 10” S&P Global has projected in an analysis of the sector outlook yesterday.
“That means that about 40 mutual banks will disappear in the coming years
as consolidation continues to accelerate” S&P said.
“We anticipate mergers will increasingly be between larger mutual lenders.
“Historically most mutual mergers involved large mutuals gobbling up smaller players. This has changed since mid-2021.”
Consolidation in the mutual lending sector has continued unabated over the past 20 years. The total number of mutual authorised deposit-taking institutions fell from about 185 in 2004 to the mid-50s as of March 2024, and will fall to 51 if the mergers currently in train all eventuate.
S&P highlighted financial themes underpinning its guesswork on the shape of industry structure in the years ahead.
“The cost-to-income ratio of Australian mutuals has remained high, averaging 75.8 per cent This compares with an average of 47.8 per cent for the major banks over the past 20 years.”
Margin pressure, S&P said, “is likely to remain for Australian mutual lenders. This will be more evident for those mutuals that chose to increase lending via brokers.”
Sector profitability has halved, S&P point out.
“Mutuals' return on assets has fallen from 0.8 per cent 20 years earlier to 0.4 per cent in 2024 … the sector needs to seek cost economies. The most obvious and fastest way to do this is through consolidation.”