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Pepper Money has reported strong growth in mortgage originations, despite a challenging environment for its asset finance business, according to the non-bank lender’s latest financial results for the second half of 2024.
The company’s overall originations for 2H24 reached $3.8 billion, a 16 per cent increase on the first half of the year. However, full-year originations were slightly down, totalling $7.0 billion, which was a 3 per cent decline compared to the prior corresponding period (PCP).
Mortgage growth steady
Pepper Money’s mortgage originations showed solid performance, with 2H24 up 27 per cent on 1H24. Full-year mortgage originations totalled $4.1 billion, representing a 5 per cent increase on the PCP.
This growth reflects ongoing demand in the mortgage segment, which continues to demonstrate resilience in the current market.
Pepper Money’s total assets under management (AUM) for mortgages closed the year at $10.2 billion, making up the majority of its total AUM, which reached $19.1 billion by year’s end.
CEO Mario Rehayem said: “Our Mortgage Originations grew 27 per cent second half 2024 versus first half, supporting an annualised Originations growth for Mortgages of 5 per cent on PCP.
“The resilience of the mortgage market was clearly seen in our credit performance for this segment, with Loan loss expense benefiting from lower Collective, only partially offset by a $1.8 million increase in Specific loss expense.
“Given the ongoing resilience of the mortgage market, we released $6.0 million in Mortgage Post Model Overlays. We remain well provisioned in Mortgages – with total provisions at $21.2 million, giving Mortgages a Coverage Ratio of 0.21 per cent (PCP: 0.24 per cent).”
Challenges in asset finance
On the other hand, the asset finance business saw more modest results. 2H24 originations were up 3 per cent on the first half, totalling $2.9 billion for the full year.
However, this represented a 13 per cent decline compared to the previous year, largely due to soft market conditions and ongoing cost-of-living pressures that suppressed demand for asset finance products.
Pepper Money closed the year with $5.6 billion in asset finance AUM, a substantial portion of its overall portfolio.
Despite the challenging environment, the non-bank lender has been adjusting its strategy, focusing on risk-adjusted returns and shifting its originations mix towards higher-quality, lower-risk Tier A customers.
By year’s end, these Tier A customers accounted for 64 per cent of asset finance AUM, which should help mitigate future losses.
Rehayem said: “Across the Asset Finance industry there has been a deterioration in credit performance – as customers in this segment are being impacted by the ongoing pressures of cost of living and high interest rates, which is seeing late-stage arrears increase.
“Further, there continues to be heightened levels of insolvencies which impact performance, as the Government protections under COVID-19 have been fully removed.
“While we saw these trends particularly over the second half of 2023 and into the first half of 2024, we addressed them in part through shifting our Asset Finance Originations mix towards credit risk Tier A customers who, at year end, accounted for 64 per cent of Asset Finance AUM. These customers attract lower losses over time.”
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