Queensland-based Auswide Bank says it will be focusing intensely on expense management this year after soaring overheads and funding costs stymied earnings growth in the 12 months to the end of June.
Auswide, which markets home loans across Australia, reported a 4 per cent slide in bottom line profit to A$25 million despite growing its home loan book at more than three times the industry average.
Deteriorating cost management has emerged as a major theme of the bank reporting season and Auswide’s expense metrics in 2023 delivered further supporting evidence.
The bank suffered a 13.3 per cent rise in operating costs to $65.3 million, fuelled by double-digit increases in total staff costs, origination fees and administrative overheads.
As a result, Auswide’s cost-to-income ratio soared 490 basis points to 65 per cent – its highest level in more than 5 years.
The company also suffered margin contraction as surging retail and wholesale funding costs ripped 6 basis points from the net interest margin, which averaged 1.88 per cent over the year.
While Auswide managed to shoot the lights out on mortgage volumes – up 14 per cent compared to the system growth rate of 4.5 per cent – the cost surge stymied earnings gains.
Net interest revenue grew by 8.7 per cent to $89.2 million.
“Profitable growth was challenged as we faced difficult conditions including rising interest rates, maturity of fixed loans and increasing people, technology, cyber, fraud detection and compliance costs,” said managing director, Martin Barrett.
“We believe the period is transitioning and we are seeing early signs of improving conditions with the stability of interest rates and the settling of aggressive home lending pricing and incentives.
“Deposit pricing remains intense, but again some early signs of pullback are evident.”
Barrett said lending volumes had slowed markedly since the start of July and the company was targeting “modest growth” in the current financial year.
“The present lending environment is highly challenging with new originations slowing in response to interest rate uncertainty and profitable growth challenges,” he said.
“Currently, we are taking a cautious approach to growth given prevailing lending rates and funding costs, however, we are seeing some improvement as we aim for modest growth, NIM protection and control of expenses as the focus continues on profitable high-quality lending, managing funding and pricing to ensure the loan book growth flows through to the net interest revenue of the bank.”
Directors declared a final dividend of 21 cents per share, bringing the total annual distribution to 43 cents – up 1 cent on 2022.