Australia's mutual banking sector in 2026: resilience, regulation and the search for sustainable growth

Australia's customer-owned banking sector is well positioned for 2026. APRA's recent moves, from introducing a more proportionate, three-tier prudential framework to streamlining the licensing process for authorised deposit-taking institutions (ADIs) are intended to level the competitive playing field and give smaller ADIs (like mutual banks) more room to grow.

At the same time, the mutual banking sector faces a convergence of strategic pressures, regulation and rapidly shifting market dynamics. Margin compression, funding and liquidity optimisation and heightened macroeconomic uncertainty remain key challenges, while regulatory expectations continue to evolve in relation to prudential supervision, operational resilience and consumer protection. Against this backdrop, digital transformation, cyber risk and emerging frameworks for digital assets are reshaping balance sheet strategy and risk management.

While the mutual banking sector will likely face even more competition and complexity this year, these challenges will present the opportunity for mutual banks and their Treasury teams to move beyond traditional liquidity and funding management toward a broader strategic role, supporting sustainability, resilience and long-term growth. Those who embrace innovation and proactively adapt to the evolving landscape will be best placed to navigate market volatility and regulatory change in the years ahead.

The following highlights several emerging themes and priorities for mutual banks in 2026.

Opportunities for sustainable and profitable growth

Maintaining profitable and sustainable growth remains a top priority for the sector, and Treasury teams are playing an increasingly important role in helping to shape the growth strategy. Profitability grew in 2025, though net interest margins were further compressed and cost-to-income ratios rose, driving increased merger activity as a strategic response to scale challenges. Fewer but larger mutuals are changing the competitive landscape as well as member representation. Integration risk following mergers is material and one of the most significant strategic challenges facing the industry, with continued consolidation expected over the next few years.

New merger control regime

A new mandatory and suspensory merger control regime came into effect on 1 January 2026 (with certain aspects (namely, the new thresholds for discrete asset acquisitions and the voting power thresholds) coming into effect on 1 April 2026). The new regime replaces the voluntary system. Mergers with a connection to Australia now need to be notified to the Australian Competition & Consumer Commission (ACCC) and cannot complete without prior approval if certain thresholds are met, and are not otherwise exempt. For more information on the new merger control regime please see our previous Insight articles.

Under the new regime, the ACCC will be the sole decision-maker, applying a revised competition test that places greater emphasis on market concentration, serial acquisitions and cumulative competitive effects over time. The new regime introduces statutory review timelines, enhanced information requirements and significant penalties for non-compliance, including "gun-jumping (where parties take steps to complete or integrate a transaction before ACCC clearance is obtained). While designed to increase certainty and strengthen enforcement, the reforms are likely to materially increase deal execution risk, regulatory cost and timing uncertainty, particularly for sectors undergoing consolidation, such as the mutual banking sector.

Digital transformation and cybersecurity

Digital transformation is at the forefront of mutual banks' strategic priorities as they look to sustain profitable growth and improve member experience. Digital transformation continues across the sector, with mutual banks focusing on technology to reduce costs, drive innovation and pilot emerging technologies, such as generative AI. These initiatives are seen as an important tool for reducing friction in customer experience, automating workflows, enhancing web and authentication capabilities and leveraging data to better understand and anticipate member needs.

However, many mutuals face constraints due to smaller teams and limited specialist digital/data skills, which makes planning and executing complex transformation programs challenging and costly. Successfully balancing technology adoption while preserving the personalised, community-focused experience that distinguishes mutuals will be a key challenge going forward.

Moreover, while improving member experience, these initiatives also introduce new operational and cyber risks. While cyber risk may not traditionally sit within Treasury, its financial implications do. Treasury teams are increasingly involved in assessing capital impacts, funding requirements and investment trade-offs associated with technology and resilience initiatives. Regulators have been clear that financial institutions must understand, measure and manage these risks. The good news is that mutual banks have the same capital and funding toolkit available to them as the major and other non-mutual sector banks, and the increased activity in the wholesale debt capital markets is expected to continue in 2026. As digital transformation accelerates, Treasury teams will no doubt be called upon to evaluate or accommodate the financial implications of adopting new technologies and as such, now is the time to consider diversifying balance sheets. Our capital markets team is well-placed to assist mutuals on the full range of fundraising options, and has more experience with mutual banks on fundraising (including MCIs) than any other firm.

Regulatory landscape

Regulatory scrutiny remains a defining feature of the operating environment for the mutual banking sector.

APRA's prudential standardCPS 230 Operational Resiliencecame into effect on 1 July 2025, requiring all APRA-regulated entities (including mutual banks) to strengthen operational risk management frameworks. APRA is engaging with institutions to ensure compliance, with its initial focus on larger entities. APRA is also actively working to make regulation more proportionate and efficient, especially for smaller banks and mutuals, including:

• proposed adjustments to the bank licensing framework to make it simpler and more efficient for new entrants and smaller ADIs without diluting prudential standards; and
  
• a proposed three-tier prudential framework to increase proportionality while supporting competition and reducing unnecessary regulatory burden on small and medium-sized ADIs (including mutuals). For more information regarding theproposed three-tier prudential framework please see our previous Insight article.

Ongoing policy reform will continue this year, including in respect to reforms to Australian Consumer Law and payments services providers that are aimed at strengthening consumer protection and financial system stability. These reforms can affect product design, disclosure, pricing and compliance costs. Treasury teams play a key role in modelling the financial impact of these changes and ensuring balance sheet settings remain aligned with evolving regulatory and member expectations. ASIC's newly-revised conflicts of interest policy in Regulatory Guide 181 will shortly take effect, and ASIC's enforcement focus on the design and distribution obligations and misconduct affecting consumers in financial difficulty will continue.

Digital assets

In 2025, the Australian government introduced a number of bills, most notably the Corporations Amendment (Digital Assets Framework) Bill 2025, addressing digital assets (including stablecoins, tokenised securities and digital wallets). The Australian Securities & Investments Commission also updated its digital asset guidance (INFO 225). These reforms aim to modernise Australia's regulatory framework, strengthen consumer protections, attract investment, and support economic growth by enabling safer participation in digital finance markets. While mutuals may not be directly impacted by these developments in 2026, the regulatory, operational and market trends around digital assets are increasingly relevant and will be important for mutuals to monitor.

Liquidity, funding and market volatility

Economic uncertainty is expected to persist in 2026, with volatility across interest rates, credit conditions and global markets. Mutual banks' structure, ethical banking and member experience are critical for remaining competitive within the broader banking industry. Treasury teams will need to remain agile, ensuring liquidity buffers are appropriately calibrated and funding strategies are diversified.

These regulatory and market shifts will affect each mutual differently, particularly in relation to funding models, capital planning and balance sheet resilience. Our team has extensive experience supporting mutual banks across constitutional updates and capital-raising transactions, including MCIs, and is available to talk through any questions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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