The Australian Prudential Regulation Authority (APRA) used a speech to the Customer Owned Banking Association CEO and Director Forum to flag a widening structural divide within Australia’s mutual banking sector, with consolidation expected to accelerate through 2026. While the sector is delivering solid aggregate performance, APRA warned that some of the smallest mutuals face increasingly challenged cost structures and may struggle to fund digital transformation and risk controls, including for advanced artificial intelligence. APRA reported that the number of customer-owned banks fell from 56 at the start of 2025 to 52 following four mergers, and expects further reductions by the end of 2026 given ongoing merger discussions. It noted four mutuals now have assets above AUD 20 billion and expects more to become Significant Financial Institutions, despite an intention to increase the SFI threshold by AUD 10 billion. On regulatory reform, APRA said the consultation on adding a third tier to its banking prudential framework has closed and submissions are being reviewed, while work continues with government on options to further lower prudential requirements for the smallest banks via a potential fourth tier if additional safeguards are introduced. APRA also outlined steps to improve transparency on Pillar 2 capital adjustments through enhanced Prudential Capital Requirement Review Letters to be issued to banks during the calendar year, and flagged planned capital and liquidity changes including modernising the Minimum Liquidity Holdings framework to better incentivise risk management and potentially free up funding for lending for smaller banks with stable funding. On operational resilience, APRA’s CPS 230 work has identified heavy reliance across mutuals on a small group of technology providers, and it urged banks to map material dependencies and manage concentration risks when considering shared or pooled service models. APRA said its commitments arising from the Council of Financial Regulators and Australian Competition and Consumer Commission review of small and medium-sized banks are due to be completed by the end of 2026. It plans to share initial CPS 230 insights with the sector over the coming months and indicated its small banks symposium will become a regular event.
Australian Prudential Regulation Authority 2026-03-17
Australian Prudential Regulation Authority warns some smallest mutual banks may become unviable and outlines proportionality and resilience reforms
The Australian Prudential Regulation Authority (APRA) highlighted a growing structural divide in Australia's mutual banking sector, with consolidation expected to accelerate through 2026. APRA noted a decrease in customer-owned banks from 56 to 52 due to mergers and anticipates further reductions. It also outlined regulatory reforms, including potential new tiers in the banking prudential framework and enhancements to capital and liquidity requirements, urging banks to manage technology provider concentration risks.