The report suggested the societies left will shrink further from 49 after the 10 mergers and takeovers in the downturn, with up to five deals expected in the next year or so.
An FT story reported a KPMG spokesman saying building societies in the Midlands and northern England “might see the logic of getting together”.
Adrian Coles, director-general of the BSA said the KPMG report highlights the strength and resilience of the building society sector in difficult market conditions.
“I believe that we have turned the corner, but that consolidation may continue at a slower pace as we enter the post credit crunch era,” said Coles.
“Whilst we may see further consolidation I believe that regional building societies have an important role to play in ensuring financial diversity when it comes to consumer choice and service,” he added.
“I think we may see further examples of building societies continuing to work together on shared services, which has worked well to date.”
Meanwhile, the KPMG report said, overall, societies “have been holding up in difficult market conditions” over the past year with two-thirds reporting increased annual profits.
KPMG added that the Yorkshire, Coventry and Leeds societies all posted strong interim results in recent months and the Skipton, Swansea and Bath were among those showing strong asset growth over the past year.
But two-thirds of societies also reported reduced assets at their year-ends, with many having problems attracting retail savings and competing with banks for mortgage lending.
“The cost of funding is by far the biggest issue concerning society executives currently,” said KPMG, predicting continuing competition for savings.
However, mortgage lender margins should widen next year, said KPMG, as initial fixed and tracker periods end, and most mutuals are also in a strong position to deal with a ‘double-dip’ recession because most of their core mortgage books are “high quality,” it said.
However, KPMG added that there is a major issue around the quality of mutual’s capital as Societies’ Permanent Interest Bearing Shares (Pibs) are no longer regarded as tier one capital by regulators.
KPMG added that regulators plan a new capital instrument for mutuals, but this may be available only from 2013. However, KPMG added that there were also “conversations” in the sector about doing deals with life insurers to securitise mortgages.