Suncorp’s loan book repositioning reflected in new ratings

The credit rating agency adjusted Suncorp’s baseline credit assessment from baa2 to baa1, and affirmed the bank’s long-term A1 issuer rating and short-term issuer rating of Prime-1.

Moody’s vice president and senior analyst Frank Mirenzi said lower non-performing loans, higher capital levels and a lower reliance on wholesale funding underline the improvements in the strength of Suncorp Bank’s balance sheet.

“The bank’s stronger balance sheet has lowered its risk profile and will also support [Suncorp’s] profitability outlook,” he said.

Moody’s said it expects favourable asset quality trends to persist as Suncorp has repositioned itself to focus on lower-risk residential mortgage lending and small business products.

“This strategy should result in a much lower risk profile than recent history, which will further underpin asset quality improvements and lead to improved profitability through lower impaired loan charges,” Moody’s said.

The agency believes Suncorp’s profit outlook is much improved, and the bank should be able to generate returns in line with Australia’s other regional banks.

“Moreover, lower funding costs have improved [Suncorp’s] net interest margin, which will help support future profitability,” Moody’s said.

As part of the larger Suncorp group, Moody’s added that the bank should be able to leverage the group's broader infrastructure, resources and procurement pricing power.

“Accordingly, its cost-to-income ratio should improve from the current 52.19 per cent as benefits of scale are realised,” it said.

Suncorp Bank’s head of intermediaries, Steven Degetto, revealed to Mortgage Business last month that the bank had undertaken a program over the last two years to reposition its mortgage portfolio, with a focus on building strong risk management capabilities.