For the past 12 months, MyState Bank (ASX: MYS) has been hot in the lending market as Australians seeking to refinance their mortgages to the lowest available rate have regularly landed at MyState which has consistently been more competitive than the Big Four banks.
But with all of those new loans written, the Tasmanian-based MyState has sacrificed margins to win the customer, a tactic that MyState will now cease in a strategy move to prioritise margins ahead of lending growth.
Brett Morgan, Managing Director of MyState, said “Given the economic and competitive environment, MyState has taken the decision to temper its FY24 lending growth. We now expect growth to be closer to system levels.”
As of November 30, 2023, customer funding constituted 70% of total funding, consistent with the Company’s guidance. Notably, there has been a shift from lower-cost transaction and savings accounts to higher-cost term deposits, attributed to changes in the deposit product mix and heightened competition for lending.
The strategic move is driven by the competitive lending environment and alterations in the deposit product mix, impacting the net interest margin (NIM). MyState anticipates the average NIM for the first half of FY24 to range between 1.45% and 1.49%, a decrease from 1.55% in the second half of FY23.
Mr. Morgan emphasised the bank’s commitment to operating efficiency and reduced expenses.
“Total expenses for the Group for the five-month period ended November 30, 2023, were lower than the same time last year, reflecting MyState’s ongoing focus on operating efficiency in a high-inflation environment.”
Despite the challenging market conditions, MyState Bank’s financial indicators remain strong. As of November 30, 2023, the total capital stands at approximately 15.4%, while 30-day arrears remain below the industry average at 0.93%. Borrowers are displaying resilience to the higher cost of living and rising interest rates, with no mortgagee in possession loans reported by MyState Bank despite the RBA’s cash rate having lifted from 0.10% in April 2022 to 4.35% in November 2023.
The impact on mortgages has been well publicised in the media with mortgage owners the most impacted by higher monthly repayments which has reined in inflation and discretionary spending has plummeted.
The revised outlook for FY24 reflects MyState’s expectations based on current market conditions. Key projections include a shift in deposit composition to more than 70% of funding, a decline in earnings per share by 7.5% to 12.5% compared to FY23 and a return on equity ranging between 7.5% and 8.0%.
This strategic shift by MyState Bank may signal broader changes in the Australian lending market, as interest rates appear to have peaked and consumers are no longer aggressively seeking the lowest mortgage rates. The move towards prioritising margins over volume growth reflects a nuanced approach to navigating the evolving financial landscape and aligning MyState with the shifting demands of Australian borrowers.
For the Financial Year ended 30 June 2023, MyState Bank reported $38.5 million of net profit after tax, the highest in the Company’s history. This was driven by 14.1% annual growth in its home loan book to $7.8 million and 12.3% customer deposit growth to $6.2 billion as MyState consistently offered leading term deposit products compare to the Big Four.
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