Lower funding and deposit costs, as well as a release of credit loss provisions, have driven strong growth in AMP Bank’s half-year earnings. But the bank’s strong bottom line performance has come at the cost of below-average mortgage growth and an outflow of deposits.

The bank reported net profit of A$88 million for the six months to June, a 76 per cent increase over its $50 million profit in the previous corresponding period.

Interest income fell 13.9 per cent to $342 million but interest expenses fell 31.3 per cent to $138 million. Net interest income rose 4.1 per cent to $204 million.

The bank’s net interest margin rose from 1.63 per cent in June last year to 1.71 per cent at the end of the latest half.

Loan impairments turned around from a charge of $35 million in the June half last year to a benefit of $13 million in the latest half.

Operating expenses were steady at $53 million. The cost-to-income ratio was 31.7 per cent.

The bank’s mortgage book fell from $20.5 billion in June last year to $20.2 billion in December, before growing to $20.6 billion at the end of the latest half. Growth over the six months was 1.98 per cent, while system growth over that period was 3.3 per cent (based on APRA figures).

The 90-day arrears rate rose from 62 basis points to 72 bps.

Deposits fell 5.1 per cent to $16.1 billion year-on-year. The term deposit portfolio fell 44.1 per cent but the at-call portfolio increased by only 13.6 per cent.

According to the AMP financial report, the bank has a focus on growth and is investing in service enhancements.

It said: “AMP Bank is targeting total residential growth above system over the long term, subject to risk appetite, competitive landscape, return on capital hurdles and funding availability.”

AMP Bank contributed around 40 per cent of AMP group earnings, compared with 25 per cent last year.

S&P Global Ratings has estimated that the bank will dominate group earnings when the demerger of the private markets business is completed.