'Maintenance of the status quo is not an option'

Those pressures include increased competition for home loans, cheap funding from wholesale markets, low interest rates and the need to reinvest in new technologies and capabilities.

Mr Russell said the time for industry transformation had clearly arrived.

"Maintenance of the status quo is not an option as it will only result in a further widening of the gap against major banks as a customer-owned business; a mutual is uniquely differentiated from shareholder-based institutions," he said.

"This differentiation allows a mutual the opportunity to take a long-term perspective on customer value creation by providing a wide range of products to a broader constituency during their life stages."

KPMG's review of the mutual bank sector found that mutuals' assets grew at 3.0 per cent from the previous year, well below the loan growth of 7.4 percent achieved by the major banks.

The review found mutuals did not obtain the benefits of lower wholesale funding costs, with retail deposit funding (over gross loans) at 96.6 per cent compared to 74.7 per cent for the majors.

At the same time, maturing fixed rate loans were repriced at lower rates as interest rates remained low.

Mutuals' cost-to-income ratios remained high at 78.7 per cent compared with 45.9 percent for the majors.

However, capital levels of 18.2 per cent remain comfortably above minimum requirements, compared with 12.3 percent for the majors, the report found.