Managers of mutual banks and credit unions are pessimistic about the prospects of the sector becoming a "fifth pillar" of the banking industry, a survey by KPMG has found.In its annual overview of the mutual deposit-taking sector, released yesterday, KPMG included findings from a survey of 53 mutuals.The survey found that:• 68 per cent believe a fifth banking pillar "is not possible."• 72 per cent believe Basel III will disadvantage their business. • 67 per cent believe a review of the financial systems is needed. • 74 per cent believe there are government and industry barriers affecting their ability to compete.The report was released on the same day as a review by Moody's Investors Service that also found little chance that mutuals would have much effect on the four major banks.KPMG wrote in its report on the sector that "implementation of Basel III is creating more pressure on financial institutions to increase core funding and reduce risk to meet higher capital levels."Organic capital generation by mutuals - from retained profits - fell by 10 per cent last year.The combined operating profit of the mutuals in the KPMG survey fell to A$491 million in the year to June 2012, down from $535 million in 2011.KPMG put the average return on equity for the sector at 7.3 per cent, down from 8.7 per cent the year before.