ME Bank posts $85.2m profit

  • By Elizabeth Fry

Industry super fund-owned ME Bank will on Thursday book a 14 per cent increase in full year underlying profit to $85.2 million, on the back of strong home loan growth.

Earnings growth largely reflected a 12 per cent increase in ME’s mortgage portfolio, the lender said in a statement.

ME Bank, owned by 29 industry superannuation funds including AustralianSuper, Cbus and Hesta, settled $6.2 billion worth of loans during the year, an increase of 36 per cent on last year.

Total assets rose 7 per cent to over $26.5 billion, customer deposits were up 20 per cent to $12.6 billion and customer numbers jumped15 per cent to 420,000.

“The Bank’s performance is particularly positive in light of the external operating environment – softening credit growth, macro-prudential restrictions on home lending, regulatory imbalances that give the major banks a competitive advantage and a banking industry ratings downgrade by Standard and Poors in May,” said ME Bank chief executive, Jamie McPhee.

The lift in annual earnings came despite the lender’s net interest margin shrinking 5 basis points to 1.50 per cent during the year due to intense competition.

Post balance date, however, the bank’s net interest margin has clawed back those points with the recent repricing of investor loan and interest-only loans.
 

Consistent trend

This result can be seen in the context of the latest major bank results, which showed a consistent trend of stronger net interest margins and suggested that lenders are doing better despite slim interest rates and weak conditions.

The lender’s cost-to-income ratio improved from 65.8 per cent to 63.5 per cent.

Importantly, in the latest financial year, ME Bank increased its underlying return on equity by 10 basis points to 8.3 per cent, which means it is inching towards the bank's medium-term target of 10 per cent.

“It was another strong performance and continued ME’s strong profit growth over the past five years," McPhee noted, adding that earnings have grown at an annual compound rate of 28 per cent since 2012.

Statutory profit after tax was $61.9 million, down from $76.8 million in 2016.

The figures included a series of one-off items such as the amortisation of $7.3 million realised hedging losses, a $6.2 million loss on the sale of the business banking portfolio, transition costs of $6.4 million associated with a new technology deal with Capgemini and legacy IT decommissioning costs of $3.4 million.

Said McPhee: “ME’s commercial partnerships with its industry fund owners continue to bear fruit: ME’s member benefits program, which it uses to market directly to members of industry super funds and unions, is now generating 13 per cent of the Bank’s home loan settlements."