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BNK set to push further into higher-margin lending

The banking group exceeded its 15 per cent target of high-margin lending in the financial year 2023, with the lender continuing to focus on property-secured commercial and specialist loans moving forward.

ASX-listed banking group BNK Banking Corporation Limited (BNK) – which operates both Goldfields Money and Better Choice – has confirmed that it will continue to prioritise its strategic shift towards the commercial and specialist lending sectors following a successful result in FY23.

Releasing its financial results for the year ended 30 June 2023 on Friday (25 August), the company flagged that since breaking into the commercial space at the beginning of the 2023 financial year and acquiring a $150 million portfolio of specialist loans from Goldman Sachs earlier this year, it had achieved and exceeded its projected growth targets in higher-margin lending.

BNK had set itself a $100 million higher-margin settlement target for FY23 but revealed that its higher-margin lending portfolio grew to $195 million, representing more than 15 per cent of its $1.3 billion loan book (5 per cent commercial and 13 per cent specialist).

It has now set itself a goal of 20 per cent of total FY24 settlements in this category and aims to build its book to $3 billion over the next three to five years.

Overall, its loan book grew 37 per cent over the year (from $984 million in FY22), driven by both organic and inorganic (acquisition) factors, while its deposit book grew to $1.2 billion (from $965 million).

Mortgage and finance brokers continue to write 100 per cent of the group’s loans, with the group having increased its number of accredited brokers by 18 per cent, to 10,145.

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Speaking to Mortgage Business about the full-year results, BNK chief executive Allan Savins said the lender had been “moderating” its organic originations through selective pricing, concentrating on “asset quality over quantity”.

He said that BNK had consciously avoided competing in the race for lower pricing in the owner-occupied loan market in “a less favourable credit environment”, instead focusing on profitable growth and higher-margin lending opportunities, including investor lending.

Mr Savins commented: “We definitely did not participate in the ‘race to the bottom’ in terms of our pricing for owner-occupied loans. We made that decision a year ago and said that we’d step out and pause that particular channel. It was about profitable growth for us, not growth for growth’s sake.

“So we are writing enough loans to ensure the book is maintained on the residential front but we aren’t really chasing high growth there. We are really looking for opportunity in the higher-margin, secured lending business and are targeting 20 per cent of our flows in this segment.”

Addressing concerns about the commercial real estate market’s recent challenges, Mr Savins acknowledged potential areas of opportunity and risk. He suggested that commercial property closely tied to discretionary consumer spending would be “closely monitored”, as would office blocks, given potential shifts in occupancy rates.

The BNK CEO added that the lender had a quality-focused approach in commercial lending, considering both borrower profile and asset class to mitigate risks.

The lender reported that only two customers were receiving hardship assistance as at 30 June, while 27 accounts were in arrears, equating to 71 bps in the loan books. Four accounts (14 bps) were more than 90 days in arrears.

Focusing on broker partnerships

Looking to the future, Mr Savins said that the group would continue to focus on commercial and specialist loans, aiming to help brokers deliver more solutions to their clients.

He said: “As we move into FY24, we’ll continue that transformation of steady, considered growth, particularly in the SME space. Growth and margin are really intertwined. So we’ll continue to improve our cost of funds to deliver higher margins, sustainable profitability and focus on leveraging our existing customer base and strengthening relationships through customer centricity…

“Through strong, strategic partnerships with key aggregation partners, the expansion of our broker base will continue into new customer and SME segments to target and win higher-margin loans.

“Brokers are the cornerstone for us to achieve our growth so we aim to take the momentum that we’ve generated in FY23 and continue to make more investments in FY24.

We’ll be making it easier and simpler for brokers to diversify their business into commercial lending.

“For us, we will work with those brokers that want to move into the commercial space to diversify their revenue … It’s about getting more strategic depth out of the partnerships that we have and finding those brokers wanting to diversify their business and make it as simple and easy as we can so they can do that.

“We’re trying to increase the broker share of wallet by giving them more products that they can give their client and create stickier clients”, adding that it will be “deepening” its relationship with Goldman Sachs this financial year with the release of new products.

[Related: BNK Group on balance sheet loan book rises 37%]

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