AMP CEP Alexis George
AMP’s locally listed scrip underperformed most other financial services stocks on Wednesday, after the company warned of margin pressure in its banking business.
In a quarterly update filed to the ASX, AMP group chief executive Alexis George prepped investors for lower than forecast banking returns in the December half, citing intense price competition in the home loan and deposits markets.
For most of this year AMP has been expanding its mortgage book at more than 1.6 times the average system growth rate, but George expects lending growth to slow in the December half.
“We continue to actively manage the bank portfolio in what remains a highly competitive environment, particularly as the Term Funding Facility refinancing continues across the market,” George said in the filing.
“We expect to see subdued growth for the remainder of the year as we continue to manage net interest margin, with full year NIM now expected to be below previous guidance of 1.30-1.35 per cent.”
AMP’s loan book grew by A$500 million to $25 billion in the September quarter, while the deposit base rose $800 million to $22.1 billion.
With loan activity now expected to be subdued for the rest of the year, AMP will probably struggle to meet consensus forecasts because the banking division now accounts for more than half of the group’s operating net profit.
Above-system loan growth in the six months to the end of June propelled AMP Bank to a 23.9 per cent rise in net profit to $57 million.
This represented 51 per cent of the group’s total net earnings of $112 million from continuing operations
Loan growth has been a key to driving consistent earnings performance through the banking division.
In the June half net interest income soared 13.6 per cent to $200 million.
AMP Bank’s net interest margin is typically at the low end of the retail banking sector, chiefly because the company needs to pay higher deposit rates to fund its lending.
The bank reported a net interest margin of 1.39 per cent in the six months to the end of June, but given George’s latest guidance it could fall below 1.3 per cent in the December half.
On an otherwise positive day of trading for most listed financial services stocks, AMP closed steady at $1.13 on above average turnover.