The first quarter of the calendar year was a downer for Suncorp and its banking arm, adding context to the renewed interest of its board in a trade sale or demerger for Australia’s fifth-largest bank.
In commentary supporting its quarterly “pillar 3” disclosures yesterday, Suncorp Bank said its “total lending portfolio ended the March 2019 quarter at A$58.9 billion …down 0.5 per cent from December 2018, [though] up 1.0 per cent from March 2018.”
Most of the contraction in lending balances this year occurred in Victoria and New South Wales, with lending to customers in its core Queensland market little changed.
The most recent monthly data from APRA (also for March 2019) shows Suncorp Bank’s share of the mortgage market was 2.81 per cent, and has declined each month since October last year.
Suncorp’s market share on business lending and deposits has been fairly stable, by contrast.
On Monday, the AFR’s Street Talk column reported that it “understands Suncorp is working with a team of UBS bankers to mull a banking unit spin-off, which would leave the Brisbane-based company as a pure play insurer and create a separate bank estimated to be worth about $4 billion”.
A long speculated merger with either Bendigo and Adelaide Bank, or Bank of Queensland, or even an unlisted second tier bank, must all be among scenarios before the Suncorp board.
David Carter, Suncorp’s CEO for banking and wealth CEO, said growth in the business lending portfolios during the quarter “was offset by a $314 million contraction in home lending, amid increased price-driven competition and a continued credit market
“Over this time, we have maintained focus on asset quality, managing our margin and supporting the broker channel, including initiatives to improve operational efficiencies.”
Loans to investors made up 28 per cent of new lending during the March quarter, while interest-only loans accounted for 21 per cent of flows.
Carter said he expects home and business lending growth “to improve in the quarter ending June 2019, particularly following Suncorp’s $3 billion lending pledge to the small business and agribusiness sectors.”
Hardship applications, relating to floods in Townsville, contributed to an increase in home loans in arrears, he said.
“We know from experience with past flood events, that the increase in arrears is temporary, with most customers successfully recovering after approximately six months.”
Carter said Suncorp Bank “continued to target sustainable business with acceptable margins and risk and maintained a strong balance sheet. We remain selective in our target markets.”
On the liability side, Carter said “we expect the ongoing investment in digital enhancements and payment capabilities that improve the banking experience for our customers to continue to deliver at-call deposits growth in the final quarter and beyond.”