AFG earnings buoyed by broker output

The result was underpinned by a 9 per cent increase in off-balance sheet loan settlements, with broker-originated home loans totalling $34 billion in FY20, up from $31.2 billion in the previous corresponding period.

The improvement in broker-originated home loan settlements spurred a 5 per cent increase in the group’s off-balance sheet mortgage book, from $147.4 billion to $154.5 billion.

This was supported by $2.2 billion in broker-originated commercial settlements, thickening the off-balance sheet commercial portfolio to $8.4 billion.  

As a result, AFG’s combined third-party-originated loan portfolio increased from $155.4 billion in FY19 to $163 billion in FY20.

Meanwhile, settlements via the AFG Business platform increased sharply, up 167 per cent, from $129.6 million to $346.4 million.

Reflecting on the bump in broker activity, AFG CEO David Bailey attributed settlement growth to a “significant increase” in demand following the initial impacts of the COVID-19 pandemic.

Mr Bailey said demand has “remained robust” over the first quarter of FY21, with lodgement activity up 28 per cent on July 2019 and 35 per cent two years prior.

“As we head into the new financial year, the residential business is well placed to reap the initial financial benefit of this increased lodgement activity; however, uncertainty remains around the broader impact on the Australian economy for the balance of the new financial year,” Mr Bailey said.

On-balance sheet book and Thinktank

Uptake was less pronounced via the group’s direct lending business, AFG Home Loans (AFGHL), with settlements stable at approximately $3.1 billion.

A 15 per cent drop in white label home loan settlements, from $2 billion to $1.8 billion, was offset by a 28 per cent increase in the uptake of securitised loans (AFG Securities) from $1 billion to $1.3 billion.

This resulted in a 14 per cent increase in AFGHL’s portfolio, from $9.1 billion to $10.5 billion.

Settlements via commercial lender Thinktank, of which AFG holds a minority stake, also increased, up 79 per cent.

Outlook

Looking ahead, Mr Bailey acknowledged the challenges facing the broader market as the community grapples with the fallout from the COVID-19 crisis.  

“The AFG board and executive team are cognisant that while FY21 currently sees AFG performing ahead of expectation, the ongoing impact of COVID-19 on the community and on future residential market lending fundamentals mean that despite the company’s strength, we remain concerned about the outlook for the property and mortgage markets,” he said.

“It is difficult on any reasonable basis to confidently predict future financial performance. In line with previous years, the company will not provide any guidance on future performance.”

However, Mr Bailey said state and federal government incentives have helped sustain demand for credit, and added that the group is well placed to manage future headwinds.

“We retain a cautious outlook of what may lay ahead. However, we remain confident that AFG’s business model and balance sheet strength places it in a solid position to respond to the challenges that the next 12 months will undoubtedly present,” he concluded.

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