Moody's Investors Service yesterday upgraded Qudos Mutual Limited's long-term issuer rating by one notch to Baa1 from Baa2, “based on the bank's strong performance to date and its reduced exposure to the aviation industry”. The rating outlook is stable.
Formerly the Qantas Staff Credit Union, Qudos unsurprisingly “entered the pandemic with a significant credit exposure (about a third of its loans) to employees in the aviation sector,” Moody’s said.
“The resilience of the bank's asset quality has been underpinned by its focus on Australian residential mortgages and, in particular, home loans with principal and interest repayments and low loan-to-valuation ratios.
“In addition, the combined effect of government stimulus and redundancy payments to Qudos' aviation sector customers laid off during the pandemic, has supported the bank's performance.
“Furthermore, aviation sector downsizing and the bank's own efforts to broaden its customer base have also reduced Qudos' exposure to the aviation sector to less than 20 per cent of total loans as of April 2022,” Moody’s said.
One potential area of risk, Moody’s said, “is the recent rapid growth in Qudos' investment home loans, underpinned by the bank's lending to Australians employed overseas who invest in Australian residential properties.
“Such customers have grown from nearly nothing to 12 per cent of gross loans in the two years to April 2022.
“Qudos has since restricted its lending growth to Australian expatriates and is growing its lending to Australian residents which could boost credit growth but also create pressure on the bank's capital ratios from an acceleration in capital consumption, although any weakening will be off a healthy base given the bank's common equity tier 1 ratio of 14.1 per cent at March 2022.
“Furthermore, the bank's organic capital generation will be supported by a more favourable earnings environment as rising interest rates will improve margins.”
The bank's proportion of nonperforming loans, which includes impaired loans and those over 90 days past due, fell by more than half to just 0.1 per cent as of March 2022.
Meanwhile, members of Qudos Bank will hold a Special General Meeting next Thursday, to vote on a proposal to reduce the maximum size of its board, from a maximum number of directors from 12 to seven.
“The board intends to reduce the size of the board following a review of the composition and size of the board and a comparison to the board sizes of other customer owned banks,” the board explained in the notice of meeting.
“Qudos has an experienced and skilled Board, with an appropriate mix of [nine] directors including retail banking, governance, accounting, finance, strategy, management and technology functional competencies.
“However, a maximum board size of 12 is relatively large, with the average board size among Australian customer owned banks being seven directors,” the board said.
At the 2022 Annual General Meeting, directors Colin Adams (a member elected director) and Dawson Petie (a board appointed director) will retire and will not seek re-appointment.
The majority of Qudos Bank’s directors are recent appointments.
The chair, Barry Jackson, is an A380 captain with Qantas, and given the retirement of Adams, he will be the sole member of the board with direct links to the bank’s former target market.
With more than A$5 billion in assets, Qudos Bank is the tenth largest mutual bank in Australia.