Investor rate changes driven by margin, says bank chief

An Australian challenger bank has conceded that a contraction in margins forced lenders across the industry to reprice their investor home loans earlier this year.

BOQ managing director Jon Sutton told shareholders last week that the regional bank was “not immune” to margin pressures, which led the group to reprice its mortgages as a restorative measure.

“In terms of net interest income, we believe the repricing that occurred across the industry for investor housing loans in August was largely in response to a contraction in margins that had emerged over the preceding months,” Mr Sutton said. “We were not immune to this and see this repricing step as restoring our net interest margin profile.”

At the release of its full-year results in October, BOQ said that the outlook for margins was looking more positive than it had six months earlier.

“The variable mortgage repricing that occurred across the industry in November has validated that view and has expanded our net interest margin, which will assist our earnings growth in 2016,” Mr Sutton said. “However, other factors such as very competitive pricing for new business and the low interest rate environment will reduce the full effect of this margin increase.

“We also note that some analysts have factored in a meaningful rate of growth in the bank’s non-interest income in the coming year.”

Mr Sutton admitted that this is an income line that continues to face a number of headwinds.

“While there are a number of moving parts, the most likely outcome we currently expect for this line item in 2015-16 is a flat- to low-growth result compared to 2014-15.”

The BOQ boss’s admission comes two weeks after fellow regional lender Bendigo and Adelaide Bank explained that its decision to follow the majors in lifting its variable mortgage rates would ease “considerable pressure” on margins.

On 3 November the lender announced that it would raise its variable rates for both investors and owner-occupiers.

“These increases followed the increases announced by the major banks which were justified as being necessary to support the increased levels of capital they are now required to hold,” Mr Johansen said.

“Our interest margin has been under considerable pressure for a long time as a result of the additional capital we were required to hold and these increases will assist in addressing this pressure.”

[Related: Rate hike to ease 'considerable pressure' on margins]

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