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Non-bank lender Resimac Group (Resimac) has released its financial results for the period ended 31 December 2022 (1H23), showing a marked slowing in prime mortgage originations and an overall drop in new settlements.
According to the lender’s results, it settled $2.4 billion of mortgages in the “challenging market” of 1H23, down $0.9 billion from the record-high $3.5 billion in the prior comparative period (1H22) and down around half a billion dollars on the previous six-month period.
Resimac Group chief executive Scott McWilliam said this reflected a 30 per cent decrease in system purchase activity (citing ABS lending figures for December 2022) and also flagged fierce competition for prime owner-occupied settlements, with “low interest rates fuelled by the RBA funding for ADIs (TFF), unusually high household savings, and cashbacks providing large banks a competitive advantage”.
Near prime and specialist continue to dominate
Specialist loans continued to dominate Resimac flows (as has been the case ever since financial year 2022), with $1.6 billion of new loans being specialist in 1H23. This was broadly in line with the previous half.
Speaking to Mortgage Business, Mr McWilliam commented: “We are active and competitive in the prime space at different times through different cycles; but the focus right now — from a mortgage perspective — is absolutely in the specialist market.
“We are not looking to follow the bank’s lead, where they’re willing to write business below cost of capital.”
Mortgage brokers were responsible for 100 per cent of specialist home loan flows and around 90 per cent of prime loans were written by brokers.
Total home loan assets under management (AUM) of $14.7 billion increased 1 per cent.
However, the AUM total is lower than the record high of $15.3 billion set in the half ended June 2022 (2H22).
The book growth was driven by specialist loans, which increased 23 per cent to $6.1 billion. This offset the 10 per cent drop in prime mortgages (to $8.3 billion) in its book.
It marked the third consecutive half in which prime loans have been running off, which Resimac suggested could continue into FY24 due to the “uneven playing field” that is attracting customers to banks.
Resimac said it expected its specialist assets under management to remain “broadly flat”.
Arrears tick up
According to the lender, around 4.5 per cent of its book (approximately $600 million) are fixed loans, which will “mature evenly” over the next three calendar years.
Approximately 2 per cent of Resimac loans were overdue, with 90+-day arrears ticking up to 0.46 per cent for owner-occupied borrowers and 0.38 per cent for investors. Victoria led the states for the highest level of arrears, at 0.63 per cent.
“Early stage arrears increased in December and January as the impact of rising interest rates and cost of living began to materialise,” the lender told investors.
“Collective provisions $40.6 million remained flat with higher arrears offset by the large macro-economic overlay taken at 30 June 2022, and lower AUM.
“Industry arrears will initially impact variable rate books, moving through the system as fixed rate portfolios roll to variable.”
However, Mr McWilliam told shareholders that while early-stage arrears have picked up in December and January, Resimac remains confident that the portfolio can absorb the stress and that the provision coverage is “more than sufficient to absorb any potential credit losses arising from arrears”.
Asset finance arm continues to grow
While mortgages have been growing more slowly recently, Resimac Group noted that the asset finance arm of the business, Resimac Asset Finance, had been quickly growing.
Asset Finance settlements were up 18 per cent to $210 million in the half, partly driven by continued growth of the commercial asset finance product with broker and aggregator partners, as well as the group’s move to build distribution by taking a controlling stake in Sonder.
“We will look to offer more and more products as we grow out our distribution and grow out our product offering … so whether its investment in distribution of organic growth, as we mature our way into the market those will both drive a lot of the growth over the next 12–18 months,” the lender said.
Resimac chief financial officer Jason Azzopardi said the growth means the lender is on track to meet its target of $1 billion in annualised asset finance settlements by FY24, which will reportedly be supported by a new digital originations platform and new funding platform.
Overall, Resimac reported a normalised net profit after tax of $40.7 million (excluding the impact of FV gains/losses on derivatives) and the board declared a fully franked final dividend of 4.0¢ per ordinary share, a payout ratio of 41.5 per cent on a statutory basis.
Focus on asset finance and specialist moving forward
Commenting on the results overall, Mr McWilliam said: “These results are broadly in line with our expectations following the second half of FY22. We knew this period would be a difficult one due to the impact of inflation and rising interest rates on household cost-of-living.
“To counter fierce prime competition from the banks, we made a strategic decision to focus on our specialist portfolio. I’m pleased to announce we settled $2.4 billion of home loans in this half — two-thirds of which came from specialist loans while maintaining credit risk standards. The average LVR at origination of these specialist loans was 71 per cent.
“I’m also pleased to note that our net interest margin increased 4 basis points compared to 2H22, driven by repricing in line with the RBA tightening cycle.
“Our portfolio continues to perform well, with loan impairments at very low levels. Early stage arrears have increased, however our conservative approach to provisioning at 30 June 2022 ensures the Group has sufficient coverage for the system stress that potentially lies ahead.
“Capital markets continued to show a strong appetite for our RMBS issuance, with the Group issuing $1.2 billion in residential mortgage-backed securities transactions (albeit at higher margins than we observed in FY22).”
Looking to the future, Mr McWilliam said: “We’re likely to see the economic headwinds continue throughout CY23. I am optimistic the current economic cycle will turn, with our medium-term strategy providing future growth.
“We will continue to focus on areas where we see the greatest opportunities in the short-term, which is mainly in our market-leading home loan specialist and asset finance lending solutions. Our strategy has always been, and will continue to be, on creating niche products for under-serviced markets overlooked by the major lenders.
“I’m also pleased to confirm that we have successfully completed our major digital transformation project resulting in a full business re-platforming of our loan originations and core banking.
“The new system lays a solid foundation for immediate and significant future enhancements to brokers and customers, which will vastly improve their experience of doing business with us in the future.”
[Related: Resimac takes on Volt Bank customers]