Newcastle Permanent and Greater Bank have announced their intention to merge, creating what would become Australia’s largest customer-owned bank in a crowded marketplace fuelled by rapid technology advancements.

The merger, set to be formalised in 2022, would create an entity holding $19.8 billion in assets with 1,600 staff and more than 600,000 customers. It would also overtake Great Southern Bank (formerly CUA) as the country’s largest mutual bank.

Greater Bank chief executive Scott Morgan said the decision to merge was driven largely by the market’s demand for innovative banking services that satisfy expectations of both customers and regulators, effectively pooling the resources of the pair to expedite technology innovation.

“Smaller organisations can be at a disadvantage in keeping pace with required investment in frequent and complex technology advancements,” he said.

As a solution, bringing the two organisations together – their unique brands will be retained – increases the scale and capabilities needed to stay competitive, said Bernadette Inglis, chief executive of Newcastle Permanent.

The merger is the latest instance of consolidation in Australia’s retail banking sector, which has seen the number of customer-owned banks decrease from 200 to just 70 over the past decade.

Consolidation aside, the mutual sector has seen increased innovation this year in its bid to attract younger customers, with Teachers’ Mutual Bank launching its Hiver digital bank last month, while Greater Southern Bank rebranded from CUA in February.

Fintech partnerships have also been on the rise, with Armidale-based Regional Australia Bank partnering with Basiq to fast-track loan applications, while Newcastle Permanent inked a $300 million deal last year with Athena Home Loans.

A consortium of 20 member-owned banks including BankVic, Police Credit Union and Hume Bank also entered partnership with Open Banking technology provider Adatree last month.

For now, Greater Bank and Newcastle Permanent have entered a Memorandum of Understanding (MoU), setting out a leadership structure with an aligned board to govern the merged entity.

According to the MoU, it is proposed that current Greater Bank chairman Wayne Russell will chair the new entity, while Newcastle Permanent chairman Jeff Eather will serve as his deputy.

Meanwhile, Newcastle Permanent’s current chief executive Inglis is tipped to assume the top job, while her Greater Bank counterpart, Morgan, will be the group’s deputy chief executive.

In contrast to the Big Four banks, which will have shuttered 350 branches from the start of the pandemic to Christmas 2021, Greater Bank and Newcastle Permanent say they will retain their network of 100 branches for at least two years.

Indeed, the two banks’ community focus and branch-level service appear to be valued by regional Australians, with both banks clinching a position on the Top 10 leader board of Forbes’ World’s Best Banks 2020 rating (based on local consumer surveys) released last June.

In the next two years, the pair state that there will also be no forced redundancies; rather, the 1,600-strong entity aims to be the Hunter region’s “employer of choice” delivering “fulfilling and rewarding careers”.

The merger’s completion remains subject to due diligence and approval by the banks’ members, as well as APRA and the Federal Treasurer.