Bank’s mortgage portfolio grows despite ‘challenges’

Bendigo and Adelaide Bank Ltd has reported a $200 million half-on-half increase (or 0.95 of a percent point) in its residential mortgage lending portfolio, taking the size of its loan book to $21.3 billion as of the end of December 2018. 

Of the $15.9 billion in total mortgages generated through the third-party channel (as at 31 December 2018), mortgage managers accounted for $12.3 billion, while mortgage brokers accounted for $3.6 billion.

“We have continued to see improvements in activity through our third-party lending business as the industry sees more customers using these channels and we return to more natural level of flows, particularly through our mortgage manager partners,” the bank’s CFO, Travis Crouch, said in a briefing on Monday (11 February).

Of the total amount of owner-occupied (OO) loans, which represents 63 per cent of the bank’s residential mortgage loan book, the proportion of principal and interest (P&I) loans went up 2 percentage points to 84 per cent in H1 FY19, while interest-only (IO) loans went down 2 percentage points to 16 per cent. 

Meanwhile, of the total amount of investor loans, which represents 37 per cent of the bank’s residential mortgage portfolio, the proportion of P&I loans rose 4 percentage points to 46 per cent in H1 FY18, while IO loans dropped 5 percentage points to 53 per cent.

“In what continues to be a challenging and highly competitive market for housing lending, we’ve achieved annualised growth of 2.7 per cent for the half, just under system’s at 3.3 per cent,” Mr Crouch said.

The proportion of the portfolio with a loan-to-value (LVR) ratio of 80 per cent or less was down 2 per cent half-on-half to 79 per cent by the end of December 2018, while the average LVR fell by 1 per cent to 58 per cent based on property value at origination.

Residential loans in arrears (90+ days) and impaired loans decreased (by percentage of portfolio) to 0.5 per cent (from 0.6 per cent) and 0.09 per cent (from 0.11 per cent).

However, by dollar value, bad and doubtful debts (BDDs) in its consumer lending portfolio (including non-residential home loans) surged over the half from $4.6 million in H2 FY18 to $12 million in H1 FY19. The figure is still below (by 66.6 per cent) the $35.9 million in BDDs recorded H1 FY18.

Continued rise in new customers joining

The bank also reported an 18 per cent year-on-year rise in new customers acquired in the December 2018 quarter, following the launch of Up and home loan pre-qualifications during the quarter, while customer departures remained flat. The monthly rate of net customer growth in the 2018 calendar year was 57 per cent.

Commenting on the bank’s results during the Monday briefing, managing director Marnie Baker said: “By focusing our efforts and investments towards the younger demographic, expanding the number of partnerships with universities, and investing in digital platforms and offering such as Up and Tic:Toc, we have substantially grown the number of customers in the past six months and reduced the average customer age, establishing a sound base for our shared future.”

“The increased momentum has continued into this year where we have seen an even bigger increase in January, largely due to increased take-up of customers in Up as well as a general across-the-board continued increase in customers joining us.”

New customers joining in January rose by 52 per cent, according to the managing director, compared to the same period last year, while customers leaving the bank fell by 2 per cent.

The bank said the Tic:Toc platform, which powers its new Express Home Loan offering, provided $2 billion worth of submitted home loan applications in 18 months, with applications “start, assessed, approved, and customer documentation sent, within an hour”.

Further, neobank Up, which is backed by Bendigo and Adelaide Bank, brought more than 30,000 new customers in the first four months of launching publicly in October 2018.  

“Our 1H19 customer growth numbers demonstrate the results of our continued investment in innovation that matters to our customers,” Ms Baker said, noting that such investments has contributed to a 30 basis point rise in its cost-to-income ratio to 57.3 per cent.

Higher wholesale funding costs, ongoing compliance and regulation expenses, as well as higher legal and product delivery costs were also attributed to the increase in its cost-to-income ratio, but this was partially offset by the 4 basis point increase to its mortgage variable rates announced in August 2018.

“Our strategy to reduce complexity and cost by simplifying functions, systems and processes and an ongoing assessment of our brand portfolio, will continue,” Ms Baker said.

Overall, Bendigo and Adelaide Bank’s net profit after tax increased slightly when compared to the previous half, increasing by 0.2 per cent from $202.8 million in H2 FY18 to $203.2 million in H1 FY19. The figure is 12.3 per cent lower than the $231.7 million in H1 FY18.

Cash earnings remained stagnant over the half at $219.8 million, but dropped 2.4 per cent when compared to the $225.3 million reported in H1 FY18.

Royal commission report to have ‘less of an impact’

Speaking of Commissioner Hayne’s final report, Ms Baker said the bank will be less affected by the recommendations than other lenders.

“The royal commission final report, whilst extensive and far-reaching, will have less of an impact on our business than many others in the industry given our business model and alignment to customer and community expectations,” she said.

“Any changes at this stage to our business appear to be procedural and policy-related rather than structural.”

She did, however, comment that the report does “little” to address issues of competition, which she noted as being “essential to better customer outcomes”.

“There is considerable scope for government to supplement the recommendations with pro-competition initiatives, including addressing the ‘too big to fail’ funding cost advantage accessed by the major banks, enhanced risk-weight settings that would result in fairer capital outcomes across all banks and the disproportionate cost of regulation on smaller participants,” Ms Baker said.

“A less competitive environment means poorer customer outcomes.”

[Related: CBA profits up, brokers drive lending growth]