ME Bank put the brakes on its business activity during the 2019/20 financial year, staying out of what its acting chief executive Adam Crane described as a “hypercompetitive and unsustainable” market for loans and deposits. Growth stalled but profit was up.
ME’s home loan book grew by 2 per cent to A$25.5 billion, compared with system growth of 3.1 per cent over the financial year. Loan settlements of $5.5 billion were 15 per cent lower than the previous year.
Customer deposits were up 5 per cent to $17.2 billion. A number of banks have reported deposit growth of 10 per cent or more over the period.
The bank kept cost growth to just 1 per cent, while net interest income rose 10 per cent.
This conservative approach contributed to a healthy bottom line. Net profit was up 20 per cent to $80.8 million, despite an increase in the impairment charge from $8.9 million to $59.5 million.
The bank’s net interest margin was up 7 basis points to 1.66 per cent and the return on equity rose 80 bps to 9 per cent.
Crane said ME has been able to reduce its funding costs and he expects to be more competitive in the current year.
Last month it repriced its basic home loan, cutting the rate by more than 50 bps and tiering its rates for borrowers with low loan-to-valuation ratios.
Despite the reputational damage the bank suffered over its poor handling of the home loan redraw limits of some customers, ME’s customer numbers increased by 7 per cent to 551,559.
Crane said there was some “minor attrition” after the issue came to light in May.
“We got it wrong, we apologised and since then we have been talking to customers. Customers are still happy with the brand,” he said.
In a statement to the House of Representatives Standing Committee on Economics in June, ASIC commissioner Sean Hughes said ME had informed it of an error in a legacy banking platform, which affected the amortisation of amounts available for redraw for around 7000 home loans.
Crane said ME was in the process of migrating all loans to its new system.
Last year, ME announced its move into wholesale lending with the launch of what it called its portfolio funding business. Its first deal was providing funding and taking equity in a new reverse mortgage lender, Household Capital.
Crane said ME remains committed to the Household Capital investment and is pleased with its progress. But it has decided not to pursue any more wholesale funding activity.
“Our focus is on our core business,” he said.