Keeping Pace with Performance in Mutual Banking

Confronting the cost-to-income challenge

In the evolving landscape of Mutual Banking in Australia, the pressure to perform has never been greater. While governance and strategic planning remain critical, the financial fundamentals – particularly the cost-to-income ratio – are demanding urgent attention.

The CTI challenge: A strategic flashpoint

Mutual Banks have long operated with a community-first ethos, often prioritising member value over aggressive profit margins. However, the financial realities of 2025 are stark. According to KPMG’s latest Mutuals Industry Review – 2024, the average cost-to-income ratio across Australian Mutual Banks is now 78.5%, highlighting a growing imbalance between operating costs and revenue.

This is an alarmingly high CTI and it is also getting worse not better; with the 2023 CTI being 75.6%. Two other important comparisons are;

1. Mutual Banks Big 4 peers are only at around 49%, and
2. That the top 10 Mutuals are actually higher (79.1%) than the remainder of the group.

At face value, one would imagine this last comparison to be the other way around – where smaller Mutuals have a worse CTI given their scale (less base to spread costs over). In fact, that has been the case historically where smaller Mutual Banks have a poorer CTI. However, CTI for the larger Mutual Banks has recently deteriorated due to consolidation in the industry which is increasing the costs and distracting from BAU activities and while major tech implementations drag on (see our blog ‘Technology Transformation through small bets’).

This figure is not just a number – it’s a signal. A CTI ratio above 70% is generally considered unsustainable in competitive banking environments. For Mutuals, it reflects structural inefficiencies, legacy systems, and a revenue model that is struggling to keep pace with rising costs and digital transformation demands.

Why this matters now

The CTI ratio is more than a financial metric – it’s a strategic litmus test. It tells us whether a Mutual Bank is equipped to reinvest, innovate, and grow. A high CTI ratio limits strategic flexibility, reduces resilience, and ultimately threatens the sustainability of the member-owned model. And it is getting worse; not better.

Boards must now ask: Are we structurally set up to thrive, or merely survive?

Why hasn’t this been solved already?

Clearly this is a nuanced and interconnected challenge for Mutual Banks. It is a fine balancing act; a careful game of trade-offs where there are no free rides. New revenue pools cannot be achieved without cost and similarly, cost constraint cannot be achieved without incurring growth or cost impacts. These are explored more in two blogs that will follow.

Mutual Banks have many reasons as to why this challenge has not already been solved. Their scale, and their primary Member focus, are two good reasons. However, outcomes matter and ultimately the CTI challenge has faced inertia, protracted pre and post-merger timetables, and a general lack of desire to take more material action.

The boiling point

Just as we’ve seen with governance inertia, the CTI issue has crept up slowly. Many Mutuals have absorbed incremental cost increases without corresponding revenue growth. But the pot is now boiling. With inflationary pressures, regulatory expectations, and digital investment needs converging, the CTI ratio has become a strategic crisis point.

What comes next

This blog is the first in a three-part series addressing the CTI challenge head-on. In the coming weeks, we will explore:

1. The Revenue Challenge – How Mutual Banks can rethink their value proposition, pricing, and product mix to drive sustainable income.
2. The Cost Challenge – Where efficiencies can be found, and how to approach cost transformation without compromising member value.

A call to action

Boards and Executives must treat the CTI ratio as a strategic priority – not just a financial KPI. The time to act is now. Whether through scenario planning, benchmarking, or operational reviews, Mutual Banks must confront this issue with the same urgency as they would regulatory intervention.

The question is no longer “can we afford to change?” – it’s “can we afford not to?”