While Australians have been increasingly frustrated by the Big Four banks and their inability to connect with customers, the trends have not played in the favour of minnow Auswide Bank (ASX: ABA) which has seen a dip in earnings, something that will be addressed through their proposed merger with fellow minnow MyState Bank (ASX: MYS).
For FY24, Auswide reported $11.2 million in net profit after tax and while still profitable, it was a 55.2% decrease on the previous year. Lending, which remains the most profitable product of small banks, remained stagnant with Auswide reporting a loan book of $4.4 billion, with no material change from last year.
With rising interest rates though, Auswide recorded an 8% increase in deposits to $3.6 billion which now makes up 75.3% of the bank’s funding. Off the back of their still profitable operations, shareholders were rewarded with a final dividend of 11 cents per share, a 96% NPAT payout ratio.
Amidst an environment of fierce competition for deposits and loans, Auswide’s net interest margin (NIM) fell from 1.88% to 1.42%, driven by the rise in wholesale funding costs. However, the bank demonstrated prudent risk management and a focus on sustainable growth, leading to a stable loan book performance. With 84% of fixed-rate loans set to mature by June 2025, Auswide is positioned to benefit from a projected uplift in interest revenue.
Beyond its financial results, Auswide has set its sights on growth through a strategic merger with MyState Bank, as announced earlier in the month. The proposed merger, expected to complete by December 2024, would combine two complementary, customer-focused institutions, creating a banking group with $12.5 billion in lending assets and $9.6 billion in customer deposits. The merger aims to leverage synergies, improve operating efficiency, and accelerate growth, with MyState shareholders anticipated to see earnings per share (EPS) accretion from FY26 onwards.
The merger is expected to generate substantial cost synergies between $20 million and $25 million, driven by the consolidation of technology platforms, shared services, and third-party providers. With the integration largely targeted for completion by FY27, the combined group anticipates significant operational benefits and a stronger balance sheet to support further growth.
One of the key drivers behind the merger is the growing preference of Australians to turn towards smaller banks like Auswide and MyState. Amid the rise of digital banking and a shifting financial landscape, smaller banks have been able to offer competitive products and a personalised approach, which many Australians find appealing as the Big Four continue to make headlines for scandals and regulatory breaches.
Auswide’s focus on regional Queensland and its expanding presence in Southeast Queensland, New South Wales, and Victoria has helped build a loyal customer base, while MyState’s strong foothold in digital banking has further enhanced its appeal.
In a time when major banks dominate the market, smaller banks are increasingly seen as offering greater flexibility, more tailored services, and often more competitive rates. Australians are moving towards smaller institutions for the personal touch, community engagement, and the nimbleness that larger banks often lack.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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