Home loan settlements surge 54% for challenger bank

A non-major bank has seen significant growth in mortgage settlements over the last six months of 2016, offsetting a fall in net interest margin.

Industry super fund-owned bank ME has reported an after-tax underlying net profit of $40.4 million for the six months to 31 December 2016, a rise of 34 per cent on the previous corresponding period.

ME CEO Jamie McPhee said it was a strong result in the face of margin pressures that are expected to continue throughout the year.

Home loan settlements hit $3.2 billion for the six months, up 54 per cent compared to the previous corresponding period, while ME’s home loan portfolio grew 9 per cent to $20.6 billion. Total assets grew 6 per cent to $24.6 billion.

ME’s net interest margin declined 3 basis points to 1.46 per cent relative to the previous corresponding period due to competition for new customers and higher funding costs.

Majors also under pressure

The non-major is not the only mortgage provider facing margin pressure. A recent Morningstar analysis of ANZ's latest quarterly profit results has focused on falling margins and a “messy” trading update overall, despite the major lender’s strong performance.

Morningstar analyst David Ellis said the trading update “was again messy” with one-off property sales and lower bad debts driving the strong profit result.

“Unspecified lower net interest margins, or NIMS, disappointed following two stable half years where margins averaged 2.00 per cent,” Mr Ellis said.

“Margin pressure was expected following recent competitor updates, but ANZ Bank’s NIM declining ‘several basis points’ is worrying. Higher funding costs and lower returns on capital caused the decline.”

Morningstar has reduced its fiscal 2017 forecast NIM to 1.95 per cent from its previous forecast of 1.98 per cent with similar decreases in outer years.

[Related: 'Sharp competition' pressuring mortgage profitability]

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