Suncorp Bank takes a prudent course

Suncorp Bank is focusing on writing profitable business and maintaining its margin ahead of asset growth at a time when low interest rates and economic uncertainty present risks for lenders.

Yesterday, Suncorp reported that its banking division grew its mortgage portfolio at an annualised rate of 3.9 per cent during the six months to December - about half the rate of system growth.

Its commercial and small business loan book shrank 11 per cent annualised over the same period, and the consumer loan balance was down 10.8 per cent.

Suncorp's chief executive, Patrick Snowball, said the bank was taking a prudent approach to lending. The bulk of mortgage lending was at loan-to-valuation ratios under 80 per cent and there was very little investment lending.

He said the bank was "cautious" in its approach to the SME market, which he described as a "fighting frenzy".

"The focus is on quality," Snowball said. He said the mortgage business would return to system growth this year.

What the bank lacked in top line growth it made up for in margin and earnings growth.

Suncorp Bank contributed A$176 million to group net profit in the December half, compared with $105 million in the previous corresponding period.

The charge for bad and doubtful debts was $43 million - down 4.4 per cent on the previous corresponding period. The ratio of gross impaired assets to gross loans and advances fell from 0.84 per cent to 0.52 per cent over the same period.

The net interest margin was up from 1.66 per cent the December half in 2013 to 1.86 per cent in the latest half. Snowball said lower term deposit rates and disciplined asset growth contributed to the margin increase.

Return on equity was 12.2 per cent, compared with 7.8 per cent in the previous corresponding period.

The bank is making two major investments: it expects to have a new core banking system up and running in 2016; and it is working towards advanced accreditation with the Australian Prudential Regulation Authority by 2017.

Snowball said he could see the bank contributing $400 million or more of profit to the group in future.

He said the bank had increased its common equity tier one target by 50 basis points, in anticipation of regulatory requirements for banks to hold more capital. "We are getting ahead of the curve," he said.