Margin recovery, disciplined cost management and a surge in lending volumes propelled Resimac to a record profit for the 12 months to the end of June.
The non-bank lender reported a 19 per cent increase in bottom line earnings to A$56 million despite also absorbing higher provisioning charges to buffer potential credit losses emanating from the COVID-19 crisis.
Resimac’s operating performance on a normalised basis was actually much better than suggested by the bottom line improvement because its 2019 profit included a one-off capital gain on the sale of its former Paywise subsidiary.
Chief executive Scott McWilliam attributed the profit surge to a 30 per cent increase in home loan settlements and cost reductions driven by lower funding expenses.
“Our portfolio growth is testament to our focus on consistent and timely credit decisioning, with our overall service offering resonating well with both brokers and consumers alike,” he said.
“Our investment in process improvement and digital automation of the home loan process continues to reap rewards.”
The Resimac result reflects a big theme to emerge from the current reporting season: most wholesale funded credit providers are adapting better than deposit-funded lenders to the low rate environment.
They appear to be the big beneficiaries of the Reserve Bank’s quantitative easing policies which have helped to drive bank bill swap rates below the cash rate in the June half.
While banks and deposit-funded lenders such as ANZ and Bendigo are having to concede margin to acquire market share in home lending, Resimac seems to be in a sweet spot where it is able to expand both loan volumes and margins.
Resimac’s net interest margin swelled by a whopping 37 basis points to 1.9 per cent at the end of June compared to 1.53 per cent at the end of the previous corresponding period.
It’s a remarkable recovery.
Resimac’s net interest margin is now higher than most listed Australian banks including ANZ(1.59 per cent) and NAB (1.78 per cent).
The margin differential could widen over the next 12 months if bank bill swap rates continue to reset below the RBA cash rate.
In the second half of 2020 the discount of BBSW to the cash rate was 2 basis points.
McWilliam declined to provide earnings guidance for the current year, citing the challenges posed by the COVID-19 pandemic.
“It is difficult to forecast the impact COVID-19 will have on the Australian housing market,” he said.
“However, during periods of historical macroeconomic instability, the group maintained strong portfolio and profit growth whilst maintaining low arrears.
“We believe opportunity remains to increase market share through both the third party and direct channels.”
Resimac’s operating performance is deriving a benefit from the diversified borrower profile of its loan book.
Only 1.5 per cent of prime home loan borrowers are employed in the hospitality industry, while the same borrower segment accounts for 6 per cent of the specialist loan book.
McWilliam told analysts that around 10 per cent of the company’s 33,000 loan accounts were on repayment deferrals since April.
However, the number of accounts subject to repayment holidays in Australia and New Zealand had reduced to 2500 or 7 per cent at the end of July.
“We expect this number to materially decrease at completion of the six-month deferral period" McWilliam said.
The earnings surge at Resimac means that it has a sector-leading return on equity of around 25 per cent.
Directors declared a fully franked final dividend of 1.8 cents per share, bringing the 2020 total dividend to 3 cents – up 20 per cent on the 2019 distribution.
The company’s ASX-listed scrip, which has been trading near record highs in the last month, closed up 5 cents to $1.35.