The broker channel helped the non-major bank grow its home loan portfolio by 7.3 per cent in the 2019 financial year, its annual results have shown.
In its full-year results, released today (19 September), super fund-owned bank ME revealed that it had seen its home loan portfolio grow by 7.3 per cent from $24.5 billion to $26.3 billion (or 2.5 times system growth) in the 2019 financial year.
This takes its overall share of the home loan market to 1.53 per cent (as at June 2019), up from 1.46 per cent the year prior.
ME’s 90-plus day delinquency rate for the year came in at 0.71 per cent, in line with industry, with home loan credit losses at $456,133.
ME CEO Jamie McPhee noted that the results were achieved “despite experiencing one of the toughest years in banking, with record-low credit growth, record-low interest rates, a highly competitive environment, and increased regulation and compliance”.
Speaking to The Adviser about the bank’s mortgage growth, he added that the broker channel continued to provide strong flows.
Looking at new business, ME settled 16,621 mortgage applications in FY19, with 61 per cent (10,153) coming from the broker channel.
On a dollar-value basis, however, the broker channel settled 72 per cent of new loans.
Mr McPhee told The Adviser: “Of the new business, just over 70 per cent is now coming through broker (with the rest through proprietary channels of mobile bankers, and direct).”
This figure is expected to grow in the future, with the bank having recently announced that it has partnered with a major brokerage brand and will hire three new business development managers to support the third-party channel.
“We are very supportive of the broker industry and we were very public around the end of the Hayne royal commission in relation to some of the suggestions around the mortgage broker market.
“We talked about the importance of the broker distribution channel and how, generally, it [generates] great competition.
“We saw some comments from some other banks through the royal commission that [the channel was] probably an auxiliary channel for them. But, for us, this is our key channel that gives us the majority of our flows.”
He continued: “Customers are voting with their feet; 60 per cent of all home loans are being sourced through brokers, so clearly, it’s a channel of choice from the customer perspective.”
The ME CEO went on to say that he believed brokers were sending clients to the bank because of its “good pricing, good service and [because] we genuinely see the broker channel as a key channel for us”.
He explained: “I think the growth in the home loan portfolio can be attributed to a couple of things. Firstly, we do always try and stay really competitively priced. I don’t mean this in a glib way, but our core purpose is to help all Australians get ahead and that is very much based around getting Australians into home ownership (as 85 per cent of Australians store all of their wealth in the equity of their home and super).
“When you think about the history of the bank, which turns 25 this year, we started as Super Member Home Loans in 1994, and the whole purpose was to provide low-cost mortgages for the members of the industry super funds. That ethos holds true today.
“We are also spending a lot of time improving in our processes and the way that we interact with our customers, and we have had a good turnaround time this year – we've been inside the three-day mark pretty much for the whole year.
“So, the pricing, the service and the mindset that comes with the channel are probably the three areas that helped us grow,” he told The Adviser.
Mr McPhee added that the bank continues to liaise with the broker channel through its broker advisory group to “discuss the biggest current pain points”.
“We have a stated objective to be one of the most highly regarded banks in the broker space, and we will work really closely with the community because it is fundamental to our business and our business model,” he concluded.
The full-year results also show that household deposits grew by 13.4 per cent to $8.6 billion, with customer numbers rising to over half a million people for the first time. Customer numbers as at 30 June 2019 were 517,868 – up 9 per cent year-on-year.
While the bank reported strong mortgage growth, its statutory net profit fell by nearly 25 per cent, dropping from $89.1 million to $67.1 million in FY19.
According to the lender, the results included costs from non-recurring items such as: IT system remediation and decommissioning costs (-$15.1 million); impairment losses on ME’s credit card business (-$14.4 million), and realised and unrealised gains/losses on hedging instruments (-$3.1 million).
However, after excluding non-recurring items, ME’s underlying full-year net profit after tax was $99.8 million.
[Related: ME Bank joins major brokerage panel]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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