Bank Australia and Qudos Bank have signalled their intention to merge, creating what would become Australia’s fourth-largest ‘customer-owned’ bank and continuing a wider sector trend of mutual marriages.

Flagging the prospect of a merger at recent board meetings, the mutuals said they recognised a common and “strong alignment in [their] culture and values, with a deep commitment to customer ownership that puts customers best interests at the core of operations”.

Qudos Bank chair Jennifer Dalitz, who would serve as the inaugural chair of the merged entity, said the pair would make “ideal merger partners with their shared focus on values-led, customer-first banking”.

In a collective statement, the mutuals argued that the merger would “provide a strong platform to accelerate the organic growth both banks have achieved in recent years”, as well as increased scale and ability to invest in “enhanced products, services and digital banking technology”.

The proposed marriage of Qudos and Bank Australia follows the recent unions of Heritage and People’s Choice banks and the Hunter-based Newcastle Permanent and Greater Bank, as the mutual sector seeks to keep pace with the well-capitalised, well-resourced and tech-forward traditional banks.

Together, the merged businesses would boast nearly 300,000 customers (with Bank Australia bringing in 190,000 members, alongside Qudos’s current membership of 95,000), employ more than 900 staff, and hold assets in excess of $20 billion.

“Bank Australia’s historic strength in Victoria combined with Qudos Bank’s strong presence in New South Wales opens up new growth opportunities for a merged entity to extend the benefits of customer-owned banking to even more Australians”, the pair said in their statement.

Founded in the 1950s as the ‘Qantas Staff Credit Union’, and rebranded in 2015, Qudos has had a difficult run in recent years, marred by a series of operational mishaps and misfortunes, including the dumping of its ill-fated core banking overhaul program – dubbed Project IQ – in 2018.

The aborted program ended up being written off to the tune of $21 million, effectively erasing that year’s profits. Qudos was also tied up in a legal stoush with the company enlisted to deliver its core systems and UX upgrade, Infosys, which was accused of ripping off the source code used in the Qudos build and reusing it in a competitor bank’s site.

After a difficult post-Covid recovery, with a notable drop in membership numbers which it is only just recovering, last April saw the sudden resignation of Qudos’ chief executive Michael Anastasi, with Brendan Wright, a former small banking head at NAB, appointed as Anastasi’s replacement. The board did not state a reason for Anastasi’s departure.

Qudos’s fortunes appear to be turning around, however, with the mutual last year recording an end of FY2023 profit of $26.20 million, up 16.6% on the previous year, a seven per cent growth in lending, and a 6.3 per cent uptick in membership.

Total assets also grew by 5.3 per cent to $5.5 billion.

Bank Australia appears the stronger – both on the balance sheet and reputationally – of the pair. The B Corp bank, notable for its “impact investing” agenda and strong ESG credentials, last year delivered a $52.3 million NPAT, up 34 per cent year-on-year.

Upwards of $1.8 billion was also invested in “impact assets” targeting action on climate, affordable and accessible housing, nature and biodiversity and First Nations reconciliation.

The mutual currently counts more than 190,000 members, with its total assets exceeding $10.5 billion currently – up from $3.5 billion in 2015.

Over recent years, the bank has focused its transformation agenda on key upgrades to its digital banking systems and operations. This included a shift of its non-core banking applications to a new data centre and network, hosted by Macquarie Telecom, the rollout of a new customer relationship management (CRM) platform for frontline staff and continuing upgrading – with existing partner Data Action – of the bank’s loan origination system, which promises to “improve approval times for home loans, credit cards, personal and car loan applications”.

The bank also notes existing contracts with Data Action to provide core banking, Cuscal for payment services, Microsoft for software solutions and Cloudcase for the development of a new enterprise loan origination platform.

Should the planned merger go ahead, current Bank Australia chief executive Damien Walsh will become chief executive and managing director, while Qudos’s Brendan Wright “will have the opportunity to continue with the merged entity in an executive capacity”, the pair said in their statement.

Head office operations will be split between Bank Australia’s head office in Collingwood, Victoria, and Qudos’s home base in Mascot, NSW, with all current branches expected to be “retained and reviewed by the merged entity to support customer service requirements”.

Following confirmation of a Memorandum of Understanding (MoU), the pair will undertake due diligence to assess the benefits of the merger.

Once due diligence is complete, the banks will put the merger proposition to a member vote either later this year or early 2025 following regulatory reviews and approvals.

The pair expect to retain both brands following the merger, though this decision will be reviewed “in due course”.