Resimac CEO Scott McWilliam
Non-bank lender Resimac Group Ltd has unveiled strong results for the half-year ended December 2020, reporting a net profit after tax of A$50.5 million, up 88 per cent on the prior comparative period (1H20).
A large part of the result came via higher interest income, up by almost $38 million, or 45 per cent, on the comparable prior year result, to $122.1 million.
Resimac has continued writing loans, COVID notwithstanding, although at a slightly slower rate: new settlements of AU$2.1 billion were down for the half year to 31 December 2020 compared the $2.4 billion in new settlements written in for the first half of FY 20.
The company's ASX announcement yesterday characterised the result as a 14 per cent increase in home loan assets under management, compared to 31 December 2019.
This was a crucial factor in the group's strong result, and into the future, according to Scott McWilliam, the group’s chief executive officer.
"One of the main drivers for the organisation is what's happening with assets under management," he said.
So, despite the slowdown in the economy, Resimac was able to grow its mortgage book at an above-system rate, with assets under management now in excess of $15 billion, made up of a mix of prime and "specialist" home loans – for instance, lending to self-employed borrowers.
McWilliam suggested the overall mix has averaged about 70 per cent prime to 30 per cent specialist: "We like to write predominantly prime [mortgages] but we also like the mix of the specialist business."
"If anything [in this quarter] prime has been down and the specialist loan book has held up."
"At 31 December 2020, approximately 500 of our customers remained in active payment deferrals, a significant reduction compared to 30 June 2020."
Economies of scale and cost management measures are starting to take effect, with Resimac's cost-to-income ratio down by a full 11 per cent to 31.1 per cent, promising an annualised return on equity of 38 per cent if momentum can be maintained.
Also on the horizon is the end of the term funding facility from the RBA.
"It will end soon which is a good thing as it will bring a level playing field back to the market," McWilliam said.
He suggested, however, that the bigger play from his point of view has been the narrowing of RMBS spreads. The Group continued to diversify its funding capabilities in 1H21, issuing $3.3 billion via residential mortgage backed securities transactions. This included its first Japanese yen offering.
"These are far more material tailwinds to our opportunities than the TFF [or lack of access to it]," Mc William said.
With this in mind, he disclosed that Resimac has just mandated a large prime RMBS deal in the market, due to be priced next week.
"We expect the pricing of this deal to be materially inside where we priced our last deal," he said.
Other key moves by Resimac Group in the coming half year will be the completion of its technology upgrade, which pulled $3.5 million from the P&L this half.
"Our investment in digital will transform the customer lending experience whilst providing a platform for scalable and cost-effective growth," McWilliam said.
He told Banking Day that Resimac's digital upgrade involves the introduction of more automation into the business, along with the replacement of its core banking platform and replacement of its origination system.
He said the process started with a formal RFP about 18 months ago followed by nine months of assessment – which included learning from other firms' failed projects before settling on the final projects and technology vendors.
"We are well advanced with the implementation of this project, which is due to be completed at the end of this calendar year."
The core banking system is supported by Infosys and the loan origination platform is supported by Loanworks, "with a number of other technologies that are in many ways driving experience," he said.
The other major change has been Resimac's move into the consumer and SME asset finance sector, boosting its 60 per cent investment in IA Group to 100 per cent earlier this month, and renaming the new business Resimac Asset Finance.
"The Group’s investment will provide access to new markets that will contribute to diversifying Resimac’s earnings," McWilliam said.
He expects the move into essentially a new vertical will take advantage of Resimac's existing distribution and funding network, while building on the assets finance business's existing lender relationships.
In its ASX release, Resimac forecast its 2020/21 net profit after tax is expected to be "in the range of $100-105 million, an 80-90 per cent increase compared to FY20" – assuming the economy continues to recover.
In other words, the second should look much like the first six months for the non-bank lender.