AFG profits up despite slip in volumes

This came despite a 2 per cent decline in off-balance sheet home loan settlements, which fell by approximately $400 million, from $17.2 billion in HY19 to $16.8 billion.

The aggregator’s on-balance sheet settlements via its AFG Home Loans business also slipped, falling by 9 per cent, from $1.7 billion to $1.5 billion.

This was driven by a sharp decline in the uptake of its white label products, down 30 per cent, from $1.2 billion in HY19 to $876.5 million.

The fall in white label volumes via AFGHL was partly offset by a 46 per cent increase in settlements of its securitised loans, from $472.7 million to $690.4 million.

In total, AFG’s off-balance mortgage portfolio increased by 5 per cent to $151.7 billion, while its on-balance sheet portfolio increased by 17 per cent to $9.8 billion.

Commercial/business volumes

Meanwhile, AFG also reported a decline in off-balance sheet commercial loans, down 6 per cent. 

However, on-balance sheet business loan settlements increased, albeit from a low base, by approximately 242 per cent, from $56.1 million to $192.1 million.  

Settlements via commercial lender Thinktank, of which AFG holds a minority stake, also increased, up 124 per cent, from $38.7 million to $86.7 million.

In total, AFG’s commercial loan book grew by 6 per cent, from $7.8 billion to $8.3 billion.

However, according to AFG, its settlement volumes gathered momentum in the second quarter, rising 6 per cent on the previous corresponding period.

AFG to ‘build on momentum’

Reflecting on the group’s performance over the half, AFG CEO David Bailey said he was pleased with underlying earnings result, which he said was driven by the aggregator’s diversification strategy.

“[The] result is testament to the growing strength, resilience and diversified nature of our business, and the service and value we deliver to Australian borrowers,” he said.

“After a subdued start to the year in residential settlements, AFG Home Loans, AFG Business and AFG Commercial are delivering growth and building on the momentum generated by the implementation of our diversification strategy.

“This makes AFG a more sustainable business.”

Mr Bailey said AFG would also look to build on a spike in home-lending activity over the second quarter of HY20, in which off-balance sheet home loan settlements increased by 6 per cent on the previous corresponding period.  

“Over the past three months in particular, we have seen market activity starting to accelerate,” he said.

“The competitive market is driving growth in market share for non-major lenders and adding to the complexity facing customers in the search for competition and choice.

“In this environment, mortgage brokers are well positioned to entrench their status as the dominant channel for home loans.”

On Connective merger

The AFG CEO also commented on the Australian Competition and Consumer Commission’s (ACCC) decision to postpone approval of the aggregator’s proposed merger with Connective.

In a statement of issues, the ACCC noted competition concerns, which it claimed could arise from the amalgamation of the two major mortgage aggregators.

However, Mr Bailey said he is confident that the merger would proceed, stressing that the proposition is “pro-competition”.  

“We remain confident the proposed merger is pro-competitive and that the preliminary matters raised by the ACCC can be addressed,” Mr Bailey said.

“The mortgage broking sector is a dynamic industry characterised by a variety of operating models designed to appeal to a wide range of brokers and for significant movement of brokers between aggregators.

“The main drivers of a broker’s choice of aggregator are technology, fee model, level of business support and lender panel. If we are not providing the support our brokers need, they can leave with as little as 30 days’ notice, and the merger won’t stop them from doing that.

Mr Bailey concluded: “Our value proposition to our brokers, and in turn for our brokers to their customers, is choice of lenders.

“We want more lenders on our panel, not less.”

The ACCC is expected to announce its final decision on 7 May.

[Related: Settlement spike brightens Mortgage Choice result]