Newcastle Permanent Building Society has resorted to buying loans to generate growth in assets, as it tries to deal with an issue affecting a number of ADIs currently – deposit growing faster than loans.
The mutual bank’s deposit balance grew 5.2 per cent to A$8.9 billion in the year to June. In addition, 92 per cent of home loan customers were ahead with repayments.
It approved A$2.5 billion of home loans in the year to June – a 51 per cent increase over the previous year.
The home loan book grew 3.7 per cent to $9.2 billion (below system growth of 5.3 per cent). A significant part of that growth (2.8 per cent) came from the purchase loans from Athena Mortgage, under an ongoing equitable assignment arrangement.
Newcastle Permanent bought the first tranche of $296 million of loans in September last year. It bought a second tranche of $246 million of loans in August this year.
Under the whole of loan sale arrangement, Newcastle Permanent is entitled to purchase high quality residential mortgages. The ongoing servicing of the mortgages is outsourced to Athena.
Newcastle Permanent earns interest income on the assets and pays fees to Athena for the purchase and ongoing servicing.
Net interest income rose 7 per cent to $208.8 million and net profit rose 41.6 per cent to $42.7 million.
With the strong deposit inflow and access to the Term Funding Facility, wholesale funding was reduced. The net interest margin was 1.84 per cent.
Expected credit loss went from a charge of $5.6 million in 2019/20 to a credit of $221,000 in the year to June.
It invested in its branch network and in its digital services. Seven locations, including the Gosford and Coffs Harbour branches, were upgraded.
It launched a new banking app, introduced new identification tools for greater convenience and also introduced digital signatures, which proved popular with customers.
In August Newcastle Permanent and Greater Bank, both based in the Hunter region of New South Wales, announced that they would explore a merger
Newcastle Permanent chair Jeff Eather said the merger proposal was still subject to due diligence. If it goes ahead the merged entity will have $19.8 billion of assets.