Australia’s Mutual Banking Sector Gains Ground with Community Focus

Australia‘s mutual banking sector, comprising mutual banks, building societies, and credit unions, has witnessed significant growth in recent years, providing an attractive alternative to mainstream financial institutions. In the 2022-23 financial year, the sector’s total assets soared to a historic $163.1 billion, highlighting the increasing strength of these customer-owned financial institutions.

Dr. Luisa Unda, an assistant professor at Mannheim University and a specialist in Australia’s tradition of customer-owned banking, points out a defining characteristic of mutuals: “The system of governance is that everyone is democratically entitled to the same participation and voice,” she states. Unlike traditional banks driven by shareholders, mutuals operate on a one-member, one-vote principle, making each customer a part-owner of the bank.

These banks are governed by a board of directors, primarily composed of members, elected by the members themselves. The emphasis on member participation underscores mutuals’ commitment to ensuring favorable outcomes for their customers. Their community-oriented approach was highlighted in a recent survey that found 63% of respondents valued the community involvement of mutuals as a key differentiator from major banks.

An example of this community focus is the People’s Choice initiative, which supports local organizations through the rebranded People First program. Since 1984, this program has raised $22 million for nonprofit groups such as sporting clubs, schools, and charities.

The mutual banking model concentrates on cooperative principles, famously embodying the concept of “cooperativism among cooperatives.” As Dr. Unda notes, “They maintain the concept of caring for members at the top. They do the best they can to satisfy the members’ interests.”

Despite being smaller entities, mutual banks demonstrated resilience during the 1990s when high interest rates saw customers moving away from major banks. The regulatory environment, overseen by the Australian Prudential Regulation Authority (APRA), ensures that mutuals meet stringent standards of financial prudence, offering the same security as big banks.

A recent report from the Customer Owned Banking Association (COBA) found that customer-owned banks donated 5.2% of their profits, amounting to $38.4 million, to community and charitable organizations, a stark contrast to just 0.6% from major banks. Michael Lawrence, CEO of COBA, remarked, “Customer-owned banks are deeply rooted in the communities they serve.”

The report, authored by economist Nicki Hutley, also highlighted that mutual banks offer competitive home loan rates, generally 0.4 percentage points lower than major banks. However, the Australian banking sector’s competitiveness remains low, with major banks dominating the landscape—an issue exacerbated by current regulatory practices.

Mutual banks reinvest profits back into services, leading to high customer satisfaction and strong regional economic impacts. Employing over 11,500 individuals, primarily outside major cities, the sector supports regional and community development. COBA has launched an online tool to help Australians find a mutual bank that aligns with their values, promoting a customer-first banking ethos.