A non-major lender is planning to expand its investment and interest-only portfolio after experiencing a sharper than expected decline in volume in the first half of the 2018 financial year.
Bendigo and Adelaide Bank has announced that it will seek to spur growth in its investment and interest-only (IO) space, following poorer than expected results in its half-year report for the 2018 financial year (FY18).
Chief financial officer Richard Fennell claimed that following a deliberate attempt to slow investor and IO lending in compliance with the Australian Prudential Regulation Authority’s imposed caps, the bank is now aiming to correct a lower than predicted drop in such loan types.
Mr Fennell said: “The actions we took around investor and interest-only [lending] have resulted in the slowing of those portfolios more than we probably would have liked, but that’s certainly a better alternative than not slowing them enough and reaching those limits, given the impact that would occur if you were unable to get below those limits.
“What that means for us now is that we do have an opportunity with the headroom that we’ve got underneath those caps, and the strong capital position, our flexibility around funding and the ability to refine our processing and offering.
“We are looking to generate growth in those areas and move back towards those caps, and we can do that, that’s certainly a reasonable risk adjustment… when we look at what we’re generating in those spaces at the moment.”
Mr Fennell added that the lender will endeavour to “tweak” its pricing of investor and IO loans to drive further growth.
“[We] are tweaking our pricing there to look to try and drive a bit more growth there,” the CFO said, “and we can probably move to more competitive positions into those markets and still be generating very strong risk-adjusted return. So, we’re comfortable to do that.”
Despite falling short of investor and IO lending expectations, managing director Mike Hirst noted a 13 per cent growth in the owner-occupier space amid “fierce” competition.
“The bank experienced strong growth in loans to owner-occupiers in an environment where competition for those customers remains fierce,” Mr Hirst said.
“While lending to home investors was curtailed by caps applied by APRA, all other metrics indicate that we are fulfilling our customers’ needs by providing a premium banking experience,” Mr Hirst added.
On a whole, the bank recorded a $231.7 million statutory profit after tax in the six months leading up to December 2017, with its total cash earnings up by 10.7 per cent to $225.3 million.