Margin recovery and record loan volumes have propelled Queensland-based Auswide Bank to a higher-than-expected interim profit.
Auswide posted a net profit of A$11.4 million for the six months to the end of December 2020 – up 24 per cent on the corresponding period in 2019.
While most other mid-tier banks failed to stem margin attrition in the December half, Auswide’s net interest margin improved by six basis points thanks largely to a $200 million rise in low-rate transaction deposits and cheap wholesale funding sourced through the RBA’s Term Funding Facility.
The bank’s net interest margin now stands at 2.01 per cent – the first time it has exceeded 2 per cent in more than a decade.
“We have had a very successful six months with a 24 per cent increase in net profit reflecting ongoing improvement in our customer attraction and service delivery,” said managing director, Martin Barrett.
“Despite a challenging macro environment with record low interest rates and a highly competitive market, we were able to achieve annualised loan book growth of 13.4 per cent across the half year.”
Auswide, which relies heavily on brokers to originate new lending, expanded its loan book by $269 million to $3.48 billion during the half.
The bank remains highly exposed to the Queensland economy, although it is now growing its loan book faster in Victoria and NSW than in the home market.
Queensland borrowers accounted for slightly more than 71 per cent of the loan book at the end of December compared to 75 per cent in June 2018.
Cost reductions were another feature of the result, with the cost to income ratio falling below 60 per cent for the first time.
Auswide is in the middle of a three-year strategic program to overhaul internal systems, which is delivering productivity gains through automation.
Barrett indicated that further productivity improvements were likely to flow from the program in future reporting periods.
The bank’s loan book appears to have weathered the disruptions caused by the pandemic, with only 1.1 per cent of borrowers continuing to receive repayment relief at the end of December.
At the peak of the crisis in June, nine per cent of the bank’s loans were subject to repayment pauses or other forms of borrower support.
Auswide’s directors declared a fully franked interim dividend of 19 cents per share – up 2 cents on the previous December half dividend.