Auswide Bank sees NPAT decline by over 45% in the face of tough competition

From being a building society—offering financial services like loans and mortgages—to being an Aussie-owned bank, Auswide Bank (ASX: ABA) hasn’t had an easy rise up to take on the Big Four with intense competition on the home loans and deposit fronts.

Auswide Bank reported a 45.7% decrease in its Statutory NPAT to $7.6 million amidst a competitive lending and funding landscape, with low arrears levels at 0.14% of the loan book and a reduction of 2.1% in the loan book to $4.31b. Additionally, the bank announced a fully franked interim dividend of 11.0cps, representing a decrease of 11.0cps.

The Company has been taking a conservative approach to protect its net margins. 

Auswide Bank’s Interim Managing Director, Greg Kenny, commented, “Market conditions during the first half of FY24 were challenging with intense competition for home loans and deposits, in addition to historically high refinancing activity across the banking industry”

Auswide Bank, established in 1966, provides personal and business banking products and services through various channels, including branches, strategic partnerships and online platforms. It has positioned itself as Australia’s tenth and Queensland’s third Australian-owned bank.

Owing to the intense competition observed at the onset of the financial year, coupled with Auswide’s cautious stance towards expansion during the first quarter, the bank experienced a decline in its loan book amounting to $93 million or 2.11%, transitioning from $4.4 billion as of June 30, 2023, to $4.3 billion by December 31, 2023. Competitive pressures of home loan retention and changes in customer deposit behaviour resulted in a contraction in the net interest margin. 

Auswide Bank is focusing on expanding customer deposits while closely managing funding costs to ensure margin stability and facilitate further growth in the loan book. Retail deposits continue to serve as the primary source of funding for Auswide, witnessing substantial growth of $180 million compared to the previous corresponding period, rising from $3.2 billion as of December 31, 2022, to $3.4 billion by December 31, 2023. 

Customer deposits collectively represent 73.7% of total funding. In December 2023, the bank settled a $400 million off-balance sheet securitisation trust (assets transformed into interest-bearing securities), reducing credit risk-weighted assets. This surplus capital equips the bank with the capacity to expand its loan book in the latter half of the financial year and reassess investment opportunities in technology, security, and productivity enhancements.

During Q3, the first-half decline in the loan book was recovered with significant growth expected. Auswide noted its growth aspirations for the second half of the financial year, hoping that loan book growth will exceed $250m with a projected growth of 5.80% across the second half.