Auswide interim CEO Greg Kenny
After a combination of a decline in its loan book and a sharp fall in its margin hit Auswide Bank’s bottom line hard in the December half, the bank is looking forward a return to growth and a more stable margin in the June half.
In the face of intense mortgage market competition, Auswide took a conservative approach to origination. The loan book declined by 2.1 per cent from A$4.4 billion at the end of June last year to $4.3 billion at the end of December.
However, efforts to retain customers rolling off fixed-rate home loans and a shift in customer deposit preferences to higher cost term deposits resulted in margin contraction.
And the bank continued to compete for deposits, as it is relying on deposit funding to replace its Term Funding Facility loans. Deposits grew $180 million to $3.4 billion, representing 73.7 per cent of total funding.
Auswide’s TFF loan was $151 million. It repaid $80 million during the December half and will pay repay the balance of $21 million by the end of March.
Its net interest margin fell 52 basis points year-on-year to 1.5 per cent.
Net interest revenue was $37.3 million – down from $46.5 million in the previous corresponding period. Net profit fell from $14.1 million to $7.7 million.
The bank’s cost-to-income ratio rose from 62.3 per cent in the December half 2022 to 74.5 per cent in the latest half.
Auswide interim chief executive Greg Kenny said the bank saw competitive pressures ease in the December quarter and revived its home loan sales efforts.
By December the bank had recovered the losses in the loan book, and it is now expecting growth of around 5 per cent in the June half.
Kenny said the bank was assessing a new round of investment in loan origination systems, aiming to improve customer service and make the process more efficient. It is also investing in cyber security technology.
He said the bank’s view was that the period of NIM contraction has finished. However, the return to a higher margin will not happen quickly and it is not clear what the “new normal” will look like.
One positive for the bank was its low level of arrears. Loans overdue by 30 days or more were just 14 basis points of total loans, and loan overdue by 90 days or more were 5 bps.