A continuing shift in business mix to higher margin lending product, combined with less residential lending punched a deep hole in the profit of Liberty Financial over the December half.
Net profit fell to A$58.1 million in the first half from $104 million in December 2022.
Impairment of financial assets this half increased by $12.7 million from $3.7million to $16.4 million “largely due to higher collective provisions for expected losses and higher specific provisions,” Liberty explained in its accounts.
Both were “driven by a change in asset mix” towards the motor vehicle finance and personal lending segments.
These segments “grow at a faster rate and have higher expected losses, so higher provisions,” Peter Riedel, the chief financial officer said.
S&P commentary on the result noted that residential lending now represents 57 per cent of Liberty’s portfolio compared with 69 per cent two years earlier.
“We saw [residential lending] decline less this half than in the prior half, and if the right conditions presented we would return that business to growth,” James Boyle, the CEO, told Banking Day.
“We were not leaning into that,” Boyle said of the period of intense price competition that is now moderating in the mortgage market.
“That started to abate over the last six months. We think we will see a reduction in refinancings and a lower discharge,” he said.
Liberty originated $2.9 billion in new financial assets over the half, broadly in line with a year before. Receivables thus lifted only modestly over a year to $14.0 billion.