Suncorp Bank: in the zone

Suncorp Bank is in pole position to compete in the home loan market as it has escaped the major banks levy as well as the credit rating downgrades that its regional rivals have suffered.

Suncorp Group chief executive Michael Cameron on Thursday claimed the bank business had entered "a special zone" by virtue of being part of a larger conglomerate.

“We have the benefits of scale, strong capital and also strong ratings a few notches above the other regionals. Also, since we have a great brand, we don’t have the image problem that some of the major banks have," he told AB+F.

“Of course it’s nice not to have to pay the big bank levy and its good to have better ratings. From a return perspective it’s a better place to be. However, from a customer perspective, the more important issue is the unique structure of the business that will generate growth."

So to what extent does the current regulatory and political activity in the banking sector provide an opportunity for Suncorp? Will the twin forces of exemption from the levy and better ratings help the bank grow its lending book?
 

Highly competitive 

To Cameron, the benefits arising from the Group’s customer-centric marketplace strategy will be greater than those from a ratings or capital perspective. Net earnings for Suncorp bank improved to $396 million for the 2017 financial year, up just 0.8 per cent and a touch below consensus estimates.

Impairment losses were low at just $7 million but higher costs meant underlying profit was lower than expected. Net interest income of $1.1 billion was in line with the previous financial year. 

“This is reflective of a period of lower lending growth and margin compression, largely attributable to the ongoing impact of a record low interest rate environment and the prevailing conditions of highly competitive lending and deposits markets,” Suncorp Group said in a media release.

Lending rose 1.9 per cent to $55.3 million and net interest margin for the year fell to 1.83 per cent, from 1.86 per cent in 2016. However, net interest margins rose to 1.87 per cent in the second half following a targeted repricing of mortgage rates.

The cost-to-income ratio of 52.7 per cent, down from 52.5 per cent was to due with the subside lending environment and partly due to the expense of completing the migration of loans and lending origination to the core banking platform. 

“Suncorp is the first company globally to roll out and operate Oracle’s new end-to-end loan origination, servicing and collections platform, and the investment led to growth in the second half with continued momentum expected into the new financial year.”
 

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