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Macquarie Group and Suncorp Group have published financial updates to the ASX, with the performances of their respective banking divisions diverging significantly.
According to Macquarie Group’s operational update for the third quarter of the 2020 financial year (3Q20), its Banking and Financial Services (BFS) division reported mortgage portfolio growth of 11 per cent over the quarter to $48.6 billion.
The bank’s home loan settlements totalled $10.5 billion over 3Q20, up 132 per cent from $4.5 billion in settlements in the previous corresponding period (3Q19).
This has contributed to a sharp increase in Macquarie Bank’s share of total home loan flows, which has risen to approximately 7 per cent, up from just under 3 per cent in 3Q19.
The bank’s home lending growth has coincided with continued improvements in its turnaround times, which have declined to as low as two days until formal approval.
In November, the head of Macquarie’s BFS division, Greg Ward, stressed the competitive utility of fast turnaround times in his appearance before the House of Representatives standing committee on economics.
According to Mr Ward, Macquarie’s investment in faster turnaround times has partly led to a sharp increase in its share of new mortgages settled in Australia.
Mr Ward told the committee that based on Macquarie’s research, borrowers would be willing to pay up to 10 bps more for a home loan product for timely approval.
“We find if your equivalent product is more than 10 bps more expensive than a bunch of other providers, then the customer is starting to think, ‘Maybe I should shop around’,” Mr Ward said.
Suncorp slips up
Meanwhile, in its financial results for the first half of the 2020 financial year (HY20), Suncorp Group has reported a 1.7 per cent contraction in its home loan portfolio, from just under $48 billion in HY19 to $47.2 billion.
As a result, Suncorp’s Banking and Wealth division recorded a 6 per cent slide in its net profit after tax, from $182 million to $171 million.
The bank attributed the performance to “slow system growth” and “elevated processing times”, particularly through the third-party channel, which originates approximately 68 per cent of its home loans.
Following the announcement, Suncorp Group CEO Steve Johnston told investors that improving the bank’s performance in the broker market was a “key priority”.
Mr Johnston said that Suncorp’s broker strategy would be centred on improving efficiencies in the loan application process.
“We have in place a comprehensive program of work to improve the speed, the quality and the consistency of our service to brokers,” he said.
“This includes a more targeted and relationship-based approach; forging deeper relationships with the small universe of brokers leads to less re-work and faster approvals.”
The Suncorp CEO added that the lender would also provide its bankers with “more flexibility at the point of loan assessment” by “going back to basics and allowing bankers to apply expertise and judgement” in the approval process.
Mr Johnston continued: “We will automate and reduce the number of processes from lodgement to settlement, and we’re using digital to improve the broker online application process.”
The Suncorp CEO added that the bank would work to rebuild its reputation across the third-party channel.
“I know that across the broker market, there is good will towards our brand and a continuing desire to do business with us,” he said.
“We know we need to do better and we will.”
“Equally, I know we’ll take some time to re-establish and win back support of this important distribution channel.”
As at HY20, Suncorp Bank holds a 3 per cent share of the home loan market.
Despite its home-lending performance, the bank’s net interest margin grew by 2 bps to 1.92 per cent, which Suncorp said reflected a “favourable shift in the funding mix from the growth in at-call deposits”.
The bank is here to stay
During the briefing, Mr Johnston was also asked to assess the viability of Suncorp’s banking division in light of continued weakness in its performance.
The group CEO stressed that Suncorp remains committed to its retail bank despite ongoing “headwinds”.
“Nothing’s changed in our thinking around the bank,” he said. “It is core [to the business] and strategically important.”
Mr Johnston pointed to the bank’s A+ credit rating and backed new Banking and Wealth CEO Lee Hatton to execute a “program of work” designed to rejuvenate the bank.
However, the CEO lamented the low interest rate environment and regulatory frameworks, which he said disadvantage regional banks.
“Overtime, that has to be addressed, and I’m confident that will be addressed,” he said.
“That will require change in terms of a range of things that I think overtime will be a tailwind for us, but that is a bit down the track.”
Overall, Suncorp Group reported a net profit after tax of $642 million, which includes the $293 million after-tax profit from the sale of Capital SMART and ACM Parts.
However, Suncorp’s profit after tax from ongoing operations declined by 6.2 per cent, which the group said reflected “lower reserve releases, an uplift in regulatory project costs and a contraction in the home lending book”.
[Related: CBA thunders ahead of rivals, Westpac falters]
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