Why are customer-owned banks merging?

Recently the two boardrooms of Newcastle-based banks Greater Bank and Newcastle Permanent agreed to merge. 

In April the boards of Toowoomba-based Heritage Bank and Adelaide-based People's Choice also agreed to merge.

Over the past decade, the number of mutual and customer-owned banks has reportedly halved, with fewer than 70 existing today.

Samuel Philipos, director of mortgage brokers Benevolence Financial Group (BFG), explained why these mergers are happening.

"For customer owned banks such as Newcastle Permanent, Greater bank, Heritage and People's Choice, mergers are a strategic avenue for banks to drive growth and reduce costs through economies of scale," Mr Philipos told Savings.com.au.

In 2021 NAB also acquired neobank 86 400, and the retail arm of Citi Australia, while Bank of Queensland acquired ME Bank and Virgin Money.

That said, the United States' Citigroup is leaving 13 countries, not just Australia.

"Citibank's acquisition may have been as a result of a similar target demographic to NAB's target market. Similarly with BOQ acquiring ME Bank and Virgin Money, this is enabling BOQ to compete more effectively with the bigger players," Mr Philipos said.

10 Largest Customer-Owned Banks Australia

Here's how Greater Bank, Newcastle Permanent, Heritage Bank, and People's Choice Credit Union compare to other customer-owned banks in terms of customer assets on the books.

Source: Australian Prudential Regulation Authority, March 2022 ADI Statistics

These figures pale in comparison to the largest banks in Australia - for example, Commonwealth Bank holds more than $900 billion in assets on its books.