Heritage's profit slides despite surge in loan approvals

A listed Australian bank has recorded strong loan growth over the year to 30 June but an ongoing investment spend on new technology has resulted in a fall in pre-tax profits.

Heritage Bank yesterday announced a pre-tax profit of $48.01 million, down 4.1 per cent on the previous year.

Heritage Bank CEO John Minz said the result reflects the extra investment the bank is making in digital technologies and in extra staffing resources.

“Our average full-time equivalent in the year was up 25 positions on the previous year, with many of those additional employees in technology-related roles,” Mr Minz said.

“We grew our assets slightly to $8.557 billion, and our retail deposits grew by $154 million to $4.861 billion,” he said. “Our liquidity ratio at 30 June 2015 was 19.39 per cent and our capital adequacy ratio was 13.37 per cent, both excellent outcomes.”

The lender’s loan approvals jumped by 27.6 per cent to $1.838 billion over 2014-15.

During the year Heritage took a deliberate strategic move to increase its loan book, Mr Minz said.

“We will continue to seek loan growth in coming years, enabled by our competitive pricing decisions, improvements to product portfolios and our excellent reputation,” he said. “While we have sought growth, this has not been reckless.”

Heritage Bank’s mortgage loan arrears greater than 30 days at 30 June 2015 was 0.39 per cent of loan balances, around a third of the industry average.

In a trading update yesterday, the bank said that while it expects revenue to remain solid in 2015-16, it emphasised the continued capital expenditure in its digital capability.

“Customers are rapidly shifting to online and mobile transactions channels,” it said.

“Heritage must invest in upgrading its digital offerings to meet those demands, and in better using digital technologies to improve processing and back-office functions.”

The bank also noted that it “faces increased costs as a result of ongoing changes to its prudential and regulatory framework”.

“It is anticipated that this increase in additional expenditure will be reflected in the 2015-16 profit figure.”

Mr Minz – who will step down as CEO later in the year – said the bank continued to develop its mobile banking app over the 2014-15, providing new features such as the ability to view authorised Visa card payments, view scheduled payments and switch between membership numbers.

“This is the benefit of employing specialist resources in-house to oversee our website and digital banking development.

“We were the first bank in Australia, outside the big four, to develop and launch our own mobile payments app in-house,” he said.

Heritage is currently in the middle of an ambitious program to completely overhaul its home loan delivery and processing platforms, to improve flexibility and service for its customers.

“This year we implemented a new discounting capability for our home loans, as well as replacing our previous professional package with our new Home Advantage packaged home loan,” Mr Minz said.

“We have also centralised parts of our processing for personal loans, and will soon implement new software to make processing of loans quicker, simpler and easier.”

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