Home loan competition eats at Suncorp’s margins

Suncorp posted its results for the first half of the 2022 financial year on Tuesday (8 February), revealing a 20.8 per cent decline in group net profit, to $388 million, off the back of a surge in insurance claims costs from 19 extreme weather events.

The banking business however delivered a $200 million profit, up 5 per cent from the previous corresponding period.

The home loan book rose by $1.2 billion (up 5.3 per cent) during the half, to total of $47.3 billion.

A year prior, home loans fell by $769 million (down 3.3 per cent) in the first half of FY21. Suncorp reported that has now approached APRA system growth rates towards the end of the last half, although it remained slightly below the benchmark.

Despite the growth in home loans, net interest income was somewhat flat, up by 0.5 per cent to $621 million and the bank’s net interest margin (NIM) had declined, to 197 basis points (bps), down from 209 bps in the second half of FY21, and 204 basis points in the first half.

Jeremy Robson, group chief financial officer at Suncorp, explained competitive pressures, movements in market rates, a higher fixed-rate lending mix and additional liquidity had squeezed the bank’s NIM.

“The NIM of 197 bps remains above our target of 185 – 195 and now we expect it to trend back to within the range in the near future, slightly earlier than previously expected given industry funding and pricing dynamics,” Mr Robson stated during an analyst briefing.

Suncorp chief executive Steve Johnston added the expected NIM range “remains a relevant reference point” for how the executive team sees the management of the bank and its loan book.

“We’ve been at 287 and 209. And you know that that… is an aberration in a sense, given some of the tailwinds on the funding side of the book that were never going to be sustainable,” he said.

“As we report here, we’re above the top of our range, we expect to be back in our range pretty soon.”

Clive van Horen, CEO of banking and wealth echoed his colleagues as well as recent updates from ANZ and Westpac, stating margin pressures “widely across the industry, are pretty significant”.

A report from Suncorp also cited increased portfolio outflows, driven by higher customer repayments, external refinancing and property sales, which were up by 17 per cent during the half.

All the while, the bank noted it had achieved a positive net refinance rate each month during the half, as more customers had switched to Suncorp than those opting for competitors.

Home lending settlements rose by 40 per cent from the second half of FY21, and 70 per cent year-on-year, to $7.2 billion worth.

Broker originations had also risen – with the channel accounting for 75 per cent of new loans during the half. During the previous six months, brokers had written 69 per cent of the bank’s home loan originations, after they accounted for 65 per cent of new loans.

Of the overall Suncorp home loan book, brokers are now the source for 69 per cent, which is fairly consistent from the previous year’s proportion of 68 per cent.

The Queensland-centred bank has also indicated ambitions to extend its reach across other states, having targeted brokers with NSW and Victorian customers with the expansion of its business development manager team.

Suncorp has invested in its mortgage processes, targeting more efficient originations and an improved broker and customer experience.

Despite the uptick in volumes, median turnarounds on home loan applications had slimmed down to 14 days, from the 16-day timeline in the previous half.

As Mr Johnston put it to analysts, the bank’s “ultimate objective is to consistently match best in market for home loan origination”, as well as vying for more market share and positive growth.

[Related: ANZ flags margin hit, turnaround fix still in progress]