Heritage manages margin strain

Ian Rogers Authorised deposit-taking institutions
Heritage CEO Peter Lock
Heritage CEO Peter Lock

Heritage Bank will “do the right thing” by its depositor members for as long as it can afford to, says Peter Lock, the mutual bank’s CEO.

Doing so has cost the bank over the last year, with a reduced margin and investment in the business eroding net profit by 4 per cent to A$43.3 million over the year to June 2019.

The bank’s interest margin fell from 1.94 per cent in 2018 to 1.89 per cent in 2019.

“So a bit of compression,” Lock said.

“When rates were going up [at big banks], we kept our rates low.  We thought it was an aberration.

“Two thirds of our customer base are depositors, versus one third borrowers. It’s really tough when you stare down the barrel of lower interest rates for longer.

“For us, we take the view, even if profit suffers, we’ll continue to do the right thing as long as we can for members.”

Speaking broadly of the mutual ADIO sector, Lock said “margin pressure is going to continue, and that plays out through lower profits, and how you manage your capital base.”

In the case of Heritage, the bank lifted its capital adequacy ratio to 14.4 per cent at June 2019, up from 14.1 per cent in 2018.

Lock said that “some smaller customer-owned banks will have a very tough time.

“I would see this leading to more consolidation in the industry. We’ve spoken to the government on this.

“If they [and APRA] continue on their regulatory path that doesn’t take into account customer-owned banks there will less competition.”

Total assets for Heritage increased by six per cent to $10.1 billion over the year. Loan approvals lifted by 8 per cent to $1.8 billion.

Retail deposits grew by 6 per cent to $6.9 billion.

The bank is building two new branches in Sydney, at Castle Towers and Westfield Parramatta and aims to have 10 in the city in the medium term, and the same number in Melbourne as well.