AFG’s loan book nears $200bn

Announced on Friday (24 February), the collective loan book amounted to $199.8 billion as at 31 December 2022.

However, while the book grew, AFG also acknowledged a downturn in residential mortgage settlements compared to the prior reported period.

In the half, brokers settled $28.5 billion of residential mortgages, down 7 per cent on 1H22 and slightly down on 2H22 (when AFG brokers settled $28.6 billion).

Commercial settlements were up, however, rising 14 per cent to just over $2 billion in the half.

Settlements for the white label arm, AFG Home Loans, and the lending arm, AFG Securities, were also both down in the half. AFG Home Loan settlements fell 15 per cent in the half, while AFG Securities dropped to just over $1 billion (down 18 per cent).

However, AFG Home Loans is now the six largest lender for home loan lodgements within the AFG network.

AFG Business settlements (its commercial arm) also fell markedly in the half, falling 31 per cent to $101 million.

According to the company, AFG Securities book grew 22 per cent on last year, closing the half at $4.9 billion.

AFG chief executive David Bailey said: “AFG had a strong first half, with a gross profit of $62.0 million. Our proven strategy to diversify income streams has allowed the business to weather the turbulent residential market conditions driven by policy intervention and the structural funding disadvantage for non-major lenders.

"Against that back drop we have grown our combined residential and commercial loan book by 9 per cent to $199.8 billion.

“A highlight for the half is the position of AFG Home Loans as the sixth largest lender for home loan lodgements within the AFG network. It remains the only non-bank in the Top 10 for residential mortgages, reflecting the strength of our products and service, and the trust of our brokers," he stated.

He continued: “Our core aggregation business has enjoyed strong broker recruitment, with our value proposition and support for our network clearly setting us apart in a competitive market.”

“Although we have seen a 7.1 per cent decrease in settlements, the level of market activity remains elevated, driven by the high levels of cash back and intensive competition for customers, with interest rate increases hitting Australian household budgets.

"The support provided by brokers to their customers has never been more important and with a Best Interests Duty enshrined in law for brokers, they are best placed to help borrowers navigate the changing market conditions.”

Record first half gross profit and cash flow

Meanwhile the aggregator's “strategic investments” (Thinktank, fintelligence and BrokerEngine) performed well, contributing $5.9 million or 19 per cent of its FY23 first-half profit before tax.

It said that amid a “well-publicised overall weaker market for residential mortgage settlements compared to the prior period”, AFG had reported “a solid result, with underlying net profit after tax and before amortisation of $25.6 million — broadly in line with last year".

“A strong balance sheet, the ability to harness opportunity in the commercial and asset finance market, and continued investment in technology all provide the foundation for future growth,” Mr Bailey said.

The company explained that its credit growth “remains positive” and in line with historical levels, with AFG “well positioned to continue to grow”.

Other key highlights included: record first-half gross profit and operating cash flow of $62.0 million and $26.9 million, respectively, and a return on equity of 25 per cent, with $200 million in liquid assets and high-performing investments.

Brokers singled out for praise

Mr Bailey praised brokers in helping delivering the result, stating: “In this rising-interest rate environment the role of brokers has never been more important.

“The support they provide to their customers to help them navigate the rapidly shifting mortgage market is vital.

“A broker has extensive insights across multiple lenders’ products and offerings.

“With cashback offers in the market, customers might be tempted to take such an offer but fees and charges, future rates and even the structure of the loan are entirely dependent upon an individual’s circumstances.  

“Brokers are the only ones with a legal obligation to ensure their customers’ best interests are first and foremost.”

Speaking of the financial results overall, he said: “AFG is well positioned. Broker recruitment is strong, and we now have over 3,700 brokers in our network. In addition, the broker channel has gained market share."

"Consumers are increasingly turning to brokers with the channel now facilitating more than 70 per cent of all Australian home lending.

The essential role mortgage brokers play in providing choice, convenience and competition leads to improved loan pricing and service across the entire market which benefits all Australian borrowers,” Mr Bailey said.

"We maintain a cautiously positive outlook that AFG will continue to perform well as we head in to the second half,” he concluded.

[Related: AFG chair to step down from board ]