AMP Bank held back growth in its mortgage book last year, as it focused on “book quality and return on capital”, but this approach did not bear fruit. Revenue, margin and return on capital were all down.

The bank made a net profit of A$119 million in the 12 months to December – down 15.6 per cent from $141 million in 2019.

Net interest income rose 1 per cent to $391 million, while fee and other income fell 52.4 per cent to $10 million. Total revenue fell 1.7 per cent to $401 million.

The net interest margin fell 10 basis points to 1.59 per cent. The bank said this was driven by higher funding and deposit costs.

“The competitive lending environment is expected to place further pressure on revenue margins through 2021, although this is expected to be partly offset by lower deposit and other funding costs,” the financial report said.

Loan impairment expense jumped from $10 million in 2019 to $31 million last year. The charge was $35 million in the June half and the bank clawed back $4 million in the second half.

The loan impairment expense represented 15 bps of mortgages – up from 5 bps in 2019.

Mortgage arrears (more than 90 days) rose from 66 bps in 2019 to 78 bps in the June half last year, before coming back to 62 bps in the December half.

Around 11 per cent of mortgage borrowers (by value and number) were on deferral last year. By early February the number was down to 1 per cent.

The value of the residential mortgage portfolio fell 10 basis points to $20.2 billion, Deposits increased 11.8 per cent to $16.1 billion. The deposit to loan ratio was 78 per cent.

Return on capital was 10.9 per cent, compared with 13.8 per cent in 2019.

The bank’s common equity tier 1 capital ratio was 11.8 per cent, compared with 10.7 per cent in 2019.

The bank completed a “renovation” of its core banking platform last year, which it says will increase operational capacity for future growth and improve customer service.