Non-major sees lift in lending, but struggles with tech

Suncorp Bank has announced a 1.9 per cent growth in lending, with strong growth in the second half of the year, but noted that profits were impacted by its investment in its core banking platform.

According to its full-year profit announcement, the group as a whole saw a net profit after tax (NPAT) of $1.07 billion in the 12 months to 30 June 2017, up 3.6 per cent on the prior year. 

CEO Michael Cameron said that the growth was indicative of “disciplined management of margin and sensible balance between reducing overheads and investing in the future”. 

Suncorp Bank’s housing portfolio now sits at $44.8 billion (up from $44.27 billion in 2016), with 66 per cent coming from the “intermediary channel”. 

Looking at the portfolio by borrower type, 70 per cent of the book was owner-occupier while 30 per cent was made up of investment loans. 

The bank said that it was “well within” APRA’s 10 per cent speed limit on investor loans, reporting growth of 4 per cent. 

However, new business interest-only loans represented 29 per cent of new lending (or 28 per cent in the second half of the financial year) just under the supervisory measure of 30 per cent

Overall, the bank saw a 1.9 per cent growth in lending, largely driven by an uptick in lending in the second half of the year. 

This was said to be a result of “the group’s early response to macroprudential and responsible lending measures after refraining from participating in intense pricing competition during the first half of the financial year”. 

However, the result was markedly down on the previous financial years, where lending growth had continually been up by more than 3.5 per cent (and up to 4.55 per cent last year). 

The cost-to-income ratio also missed the bank’s target of being sub 50 per cent, coming in at 52.7 per cent for the financial year. 

The bank said that this was a result of “lower lending growth, low interest rates and low economic growth, along with further investment in the Suncorp strategy to position the business for growth”. 

Technology woes continue

Indeed, the bank’s NPAT for the year was $396 million, impacted by “the additional investment in the core banking platforms”. 

The Oracle core banking overhaul, part of the Project Ignite transformation, has been reportedly plagued by scalability, regulatory and configuration issues. 

The bank revealed that, as a result of the embedding process taking “longer than expected”, it will “pause the migration of deposits and transaction banking products, pending further system enhancements from the vendor”. 

Speaking at a media briefing, Suncorp CEO & managing director Michael Cameron said: “Just in relation to Oracle and our relationship there, what we have chosen to do with just a small group of our products is to leave them running on the old system rather than take a chance or risk in actually launching on a new platform. 

“At the end of the day, the customer experience is what counts. We don’t want to be in a situation where we are getting outages, so all we are really doing is waiting for a new version of the same software to be released, which incorporates the sorts of things that we want rather than build them ourselves internally.”

Mr Cameron continued: “It will actually cost us a little less, it will de-risk the operations from a customer perspective, and it means just running two systems for a period of time. 

“Whilst it’s not ideal, it’s something we thought long and hard about. But it certainly won’t be getting in the way of building and launching a single digital platform and, in many ways, it does help us free up capacity to do that.” 

The company said that it would be investing an additional $100 million after-tax in this financial year to “deliver the key components” of its new Marketplace model.

This will include a “single digital experience for the entire Suncorp network” through a new Suncorp Marketplace app, and the acceleration of “the connection of new third-party partnerships into the Marketplace to enhance speed and delivery of new services and solutions”. 

The bank highlighted that it believed it had a “sustainable business for the future”, noting that the last financial year was the first time in several years that the ban had increased customer numbers. 

During the financial year, 147,000 customers came to the bank “organically” while a further 252,000 were acquired through the entry into the South Australian Compulsory Third Party (CTP) insurance scheme. 

Mr Cameron concluded: “Our focus on elevating the customer has resulted in an increase in total customers, driven by improved volumes and better retention.

“With a substantially new senior leadership team now settled in, our focus is on implementing our winning strategy.

"We have a sustainable business for the future.”

[Related: Suncorp Group names new non-executive director]

 

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Annie Kane

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