Greater scale, modest earnings growth
In March 2026, our publication How Australia's mutual banks can thrive through disruption1 identified five battlegrounds and a strategic choice for boards: combine, collaborate or compete. Our analysis of the 30 June 2026 results of Australia's ten largest customer-owned banks2 provides an early indication of how the sector is responding.
The sector continued to grow and consolidate, but the earnings uplift remains modest relative to balance sheet expansion. Aggregate profit before tax increased 5.6% to $662m, supported by lending volume growth of 11.6%. Rising operating expenses and weaker other income offset the additional margin achieved from this growth. The next challenge is converting greater scale into sustainable profitability and operating efficiency.
The opportunity lies beyond the product shelf
Net interest income accounted for approximately 94% of total income across the banks analysed. This concentration leaves earnings closely linked to lending and deposit pricing in a market where scale can provide a competitive advantage.
Our March publication highlighted the opportunity for mutual banks to support members' broader financial wellbeing, building on their community relationships, member focus and established trust. This offers a potential point of differentiation beyond rates and traditional banking products. Targeted investment in data and digital services, alongside partnerships with technology providers and other mutuals, could deepen member relationships and broaden sources of income. The question is which capabilities to build, which to access through collaboration and how to translate these investments into better member outcomes.
Growth outpaces the market, at a cost to funding
Lending grew 11.6% and deposits 9.5%, compared with system growth of 5.4% and 6.5%, respectively. Growth was supported by competitive product offerings and the greater scale and capital capacity delivered through balance sheet management.
Funding this expansion has become more expensive. Competition for deposits has placed pressure on margins, with net interest income increasing 7%, below reported loan and deposit balance growth. If funding pressure persists, sustaining earnings growth through lending volumes alone may become increasingly challenging.
Costs rise as efficiency gains remain modest
Operating expenses rose 5.6% ($126.6m) to $2.4bn, while the expense-to-income (ETI) ratio remained broadly flat at 77.7%. This highlights the challenge of translating increased income into operating leverage.
Technology modernisation, cyber resilience, regulatory compliance and workforce capability continue to require investment.
The next test is whether integration benefits and technology investment can deliver measurable, lasting productivity gains. Without this, greater scale risks adding cost and complexity without materially improving operating efficiency.
Credit quality sound, capital provides capacity
Credit impairment expense increased by 53.3% to $19.5m, albeit from a low base. Credit provisions rose 10.3% to $159m, broadly in line with loan book growth, with provision coverage remaining at 13 basis points.
There was limited evidence of widespread borrower stress. Continued household financial pressures warrant close monitoring of arrears, portfolio performance and the assumptions underpinning ECL estimates.
The average common equity tier 1 (CET1) ratio was broadly stable at 16.84%, providing capacity to support growth and continued investment. The challenge is deploying that capacity in ways that generate sustainable returns and tangible value for members.
From scale to value
The FY26 results reinforce that scale is an important enabler of competitiveness, but not a guarantee of stronger outcomes. Mutual banks have demonstrated their ability to grow and consolidate, while improvements in profitability and efficiency have been more restrained.
The priority remains to build scale and extracting value from it: realising integration benefits, strengthening operating efficiency, protecting funding margins and deepening member relationships. Those that combine disciplined execution with a differentiated member proposition will be best positioned to turn scale into sustainable returns and better member outcomes.
Our detailed analysis addresses the areas that shaped the current period3:
Earnings and returns
Profit before taxPre-tax profit increased 5.6% to $662m, a $34.8m increase. Higher net interest income from balance sheet expansion was partly absorbed by rising operating costs and lower non-interest income, tempering the benefit of strong lending growth
Return on assets
ROA improved modestly to 0.32%, supported by 5.5% growth in net profit after tax to $468.3m. With assets increasing 11.3%, translating enlarged balance sheets into sustainable returns remains a key test for the sector.
Revenues
Net interest incomeNII rose 7.0% to $2.9bn, supported by growth in net interest-earning assets, while disciplined pricing strategy and optimisation of the product mix provided additional support to NII growth.
Other operating income declined 9.5% to $194m, reflecting softer fees, commissions and dividend income. This reinforces the sector's dependence on NII to generate earnings.
Lending
Lending growth GLAA growthLending grew 11.6%, outperforming system growth of 5.4%, reflecting strong expansion across residential mortgages and commercial lending. Growth was supported by competitive product offerings and continued investment in digital lending capabilities, while merger activity provided additional scale and capacity to support further lending growth.
Deposits increased 9.5%, supported by competitive savings products. This outperformed system growth of 6.5% but lagged lending growth, keeping deposit retention, funding mix and wholesale funding access in focus.
Expenses
Operating expensesOperating expenses increased 5.6%, $126.6 million to $2.4bn, reflecting continued investment in technology modernisation, cyber resilience, regulatory compliance and people. Merger integration added complexity, reinforcing the need to convert increased scale into lasting efficiencies.
The expense-to-income ratio improved 20bps to 77.7% as income growth modestly outpaced costs. However, the elevated ratio highlights the challenge of funding essential capability investment while delivering efficiency improvements and member value.
Asset quality
Credit impairment expenseCredit impairment expense increased by 53.3% to $19.5, reflecting higher collective ECL charges and loan write-offs of c.$5 million. Credit losses remain modest relative to loan balances, with limited evidence of widespread credit stress.
Credit provisions rose 10.3% to $159m, broadly in line with lending growth. Higher collective allowances reflect a cautious approach to macroeconomic uncertainty, notwithstanding generally resilient credit performance across the banks reviewed.
Balance sheet
Credit provision cover Total provisions for credit impairment as a % of GLAAProvision coverage remained at 13bps, as provisions and lending balances rose at broadly similar rates. Credit losses remain relatively low, although persistent household pressures warrant continued scrutiny of arrears and forward-looking ECL assumptions.
Core equity T1 Common equity tier 1 ratio (%)
CET1 capital remained broadly stable at 16.84%, or $9.1 billion, and well above the minimum regulatory requirement of 8%. The sector’s capital position provides mutuals with capacity to support growth and reinvest in customers and communities, while continuing to fund strategic priorities across technology, cyber security and digital capability.
About the authors
Explore our Major Banks Analysis
