A significant shift in the deposit mix of Suncorp’s banking division and a big drop in overseas wholesale funding boosted the bank’s net interest margin in the December 2020 half. And the return of impairment losses to more normal levels was also a big contributor to earnings growth of 11 per cent.
Suncorp released its results for the December half yesterday, reporting that the banking and wealth division bounced back after a big fall in earnings in the June half last year.
The division earned net interest income of A$618 million – an increase of 4 per cent over the previous corresponding period and up 3.5 per cent compared with the June half last year.
Banking profit after tax was $190 million, compared with $171 million in the previous corresponding period and $77 million in the June half.
The big dip in earnings in the June half was due to impairment losses of $171 million, compared with impairments of just $1 million in the December half 2019.
Impairments came back to $8 million in the latest half, which represented 3 basis points of gross loans and advances.
At the end of December, the value of non-performing loans was $699 million – down from $764 million at the end of June last year.
The banking and wealth division contributed 37.3 per cent of the group’s cash earnings of $509 million for the half-year.
Suncorp chief executive Steve Johnston said a highlight for the banking division was the increase of 8 bps in net interest margin to 2.04 per cent.
The bank’s housing loan book shrank during the half, on account of what Suncorp conceded was a sub-optimal broker application process. The housing loan portfolio fell from $47.2 billion in December 2019 to $45.7 billion at the end of the latest half.
Johnston said lodgement volumes improved towards the end of the half.
Business lending grew 0.7 per cent to $11.4 billion over the half.
Customer deposits rose 4.5 per cent to $41.4 billion. There was a significant change in the composition of deposits, with term deposit balance falling from $14.5 billion to $9 billion, while at-call savings account balances increased from $14.7 billion to $19.8 billion and transaction account balances increased from $10.5 billion to $12.6 billion.
This shift to accounts paying lower interest rates was a significant factor in helping the bank improve its margin.
The deposit to loan ratio increased from 67.8 per cent at December 2019 to 72.3 per cent at the end of the latest half.
On the wholesale funding side, short-term overseas wholesale funding fell 28 per cent to $1.8 billion and long-term overseas wholesale funding fell 61.5 per cent to $1.3 billion. Total wholesale funding fell 10 per cent.
Loans on deferral at the end of December accounted for 1.2 per cent of the home lending portfolio and 0.8 per cent of the SME loan portfolio.
The bank’s common equity tier 1 capital ratio was 10.06 per cent for the half, compared with 9.34 per cent for the 1029/20 financial year.
The Suncorp board has declared a dividend of 26 cents a share