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‘Sharp competition’ pressuring mortgage profitability

‘Sharp competition’ pressuring mortgage profitability

A non-major bank has had its net interest margin squeezed by seven basis points over the second half of 2016 amid challenging market conditions.

Suncorp Bank this week reported net interest income of $558 million for the six months to 31 December 2016, a decrease of 0.9 per cent over the period. The bank’s NIM closed at 1.78 per cent for the half.

“The NIM declined 7 basis points compared with the prior corresponding reporting period and remains within the target operating range at 1.78 per cent,” Suncorp said in a trading update.

“Cumulative impacts from regulatory and economic factors led to a reduction in net interest income,” it said, noting that challenging market conditions continued due to reductions to the RBA cash rate and sharp industry competition for customer deposits.

“The impact was partially mitigated through active use of diversified wholesale funding programs. A focus on cost management has offset the effects of reduced margins resulting in a moderate improvement in the cost to income ratio to 51.4 per cent for the half year.”

Suncorp continues to benefit from robust credit quality and risk management during the half, with impairment losses on loans and advances of $1 million. Credit losses experienced by the bank during the half were partially mitigated by reductions in provisions from the settlement of non-performing loans.

The non-major lender has conducted detailed analysis of inherently higher risk portfolio segments and is confident in the credit quality across its loan portfolio.

“A very limited exposure to inner-city apartments and the resources sector has been maintained during the half. Periods of heightened volatility demonstrate the benefit of access to a range of funding instruments in both domestic and offshore markets,” the group said.

The bank saw steady growth in the home loan portfolio during the second quarter, driven by a targeted home lending campaign.

“This momentum is expected to continue into the second half of the financial year. There was a moderate reduction in the home lending portfolio over the half as the bank focused on managing volumes and margin to ensure profitable and sustainable lending in a largely price driven market,” it said.

Suncorp added that strong relationships with intermediaries are integral to building a presence outside traditional Queensland markets, with approximately 50 per cent of the home lending portfolio interstate and a growing proportion of new business coming from NSW and Victoria.

[Related: Banks' failure to pass rate cut 'not unexpected']

‘Sharp competition’ pressuring mortgage profitability
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