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Suncorp Bank’s profits fall as mortgage lending slows

Suncorp Bank’s profits fall as mortgage lending slows

The non-major bank’s net profit after tax has dropped by 4.7 per cent, coinciding with weaker home lending performance.

In its 2019 half-year financial results (HY19), Suncorp Group has reported that its bank’s home lending portfolio grew to $48 billion as at 31 December 2018, an increase of $1 billion (2.2 per cent) from $46.9 billion in HY18.

However, in comparison, Suncorp’s mortgage book increased by 6 per cent from $44.3 billion in the 12 months to December 2017.

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Suncorp partly attributed slower lending growth to “longer than normal” processing times through the broker network amid tighter credit standards.

Despite acknowledging the impact of slower processing times, Mr Cameron told Mortgage Business that the group remains committed to its existing home loan assessment process.

“The processing issue goes to the heart of our early implementation of what I describe as responsible lending,” Mr Cameron said.

“I think when you’re assessing a loan on behalf of a broker, you can do it very quickly and increase the risk profile and put at risk the outcomes for the customer or you can actually take some time and look at the capacity of the people to repay the loans, their spending patterns, their savings patterns, and those sorts of things.”

“To do that properly takes time, and typically, to do it properly takes longer than maybe some other organisations.”

The Suncorp CEO said he expects competitors to adopt similar assessment processes in the near future.

“I think sooner rather than later the rest of the industry would catch up and align themselves with those stricter responsible lending rules, which would be good for the industry.”

Suncorp also attributed “moderating lending activity” to external factors, including the slowdown in property market activity, which Suncorp said is likely to “intensify price-driven competition”.

The non-major predicted that market dynamics would “continue to be impacted by industry-wide implementation of tighter lending criteria as well as reducing property investor confidence”.

According to the bank’s HY19 results, owner-occupier loans make up 72 per cent of the bank’s mortgage portfolio, with investor home loans totaling 28 per cent.

Further, 79 per cent of loans in Suncorp’s mortgage book are tied to principal and interest repayments, while interest-only loans make up 21 per cent of its portfolio.

Additionally, as of 31 December 2018, 78 per cent of home loans in Suncorp Bank’s portfolio were settled with a loan-to-value ratio (LVR) of less than 80 per cent, compared to 22 per cent of mortgages with an LVR of more than 99 per cent.

Slowed lending growth coincided with a $9 million (4.7 per cent) reduction in Suncorp Bank’s net profit after tax, from $191 million in HY18 to $182 million in HY19.

The group’s total net profit after tax fell sharply, dropping by 44.7 per cent from $452 million in HY18 to $250 million in HY19.

Mr Cameron attributed the drop in the group’s underlying profit to natural hazard insurance costs “significantly above” the group’s allowance and “volatile investment markets”.

[Related: Bank thickens mortgage book by 20%]

 

Suncorp Bank’s profits fall as mortgage lending slows
Suncorp
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