Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BNK Banking Corp Ltd (ASX:BBC, Financial) reported a narrowing of its underlying NPAT loss to $900,000, an improvement of $600,000 from the previous year.
- Net interest income increased by 3% year-on-year to $19.3 million.
- Operating expenses were reduced by 6% to $21.6 million, demonstrating effective cost management.
- The high-margin lending portfolio grew by 32% to $257 million, now representing close to 90% of the total portfolio.
- The company achieved a positive underlying NPAT in the second half of FY24, with a $1.5 million improvement from the first half.
Negative Points
- The net interest margin for the full year decreased by 9 basis points to 1.06%, reflecting intense market competition and rising funding costs.
- Despite improvements, the company still reported an underlying NPAT loss of $900,000 for the year.
- There was a slight decrease in offset account balances from $89 million to $79 million over FY24.
- The fixed rate loan portfolio is expected to reduce significantly in FY25, which may impact future income stability.
- The company experienced an increase in arrears over the course of FY24, with residential loan book arrears greater than 30 days at 1.64% and commercial loan book arrears at 0.89%.
Q & A Highlights
Q: Can you please expand on your portfolio mix? What is specialist residential? And can you give an example of a typical commercial loan?
A: Specialist residential loans are for prime borrowers who use alternative methods to substantiate their income, such as alternative documentation loans. A typical commercial loan might be for acquiring a factory for business use or investment, secured by properties with alternative uses in case of foreclosure. The product suite includes term loans, self-managed super fund loans, and lease stock loans.
Q: Strategically, where do you see the business in five years' time?
A: We aim to achieve a cost-to-income ratio of less than 60%, a net interest margin greater than 2%, and a return on equity greater than 10%. We are focused on sustainable profitability without consuming capital, investing strategically to grow the business and achieve these metrics.
Q: When will the business become profitable, as this seems to be continually pushed out?
A: We are on a solid growth trajectory and expect to deliver sustainable profitability by continuing to optimize our portfolio composition and focusing on high-margin assets. Our recent financial improvements indicate we are on the right path.
Q: Do you have any specific strategies in mind to close the gap to the NTA of $0.99?
A: Enhancing our performance metrics and achieving our profitability goals will help the market recognize the value of our shares. We believe that consistent delivery on our targets will close the gap to the NTA.
Q: What actions have you taken to manage funding costs amid competitive market conditions?
A: We have actively balanced the composition of term deposits for greater funding stability and managed our funding costs selectively. This approach has led to a marked improvement in our net interest margin in the second half of FY24.
Q: How has the shift towards higher-margin assets impacted your loan book and risk profile?
A: The shift towards higher-margin assets has improved our loan-to-value ratio, with over 90% of the portfolio having an LVR below 80%. This indicates reduced portfolio risk and accumulating borrower equity.
Q: Can you provide more details on your technology transformation and its expected impact?
A: Phase 1 of our technology transformation has streamlined internal processes for commercial loan originations. Phase 2 focuses on transforming technology for the residential portfolio and deposits, aiming to drive further efficiencies and improve the customer experience.
Q: What is your outlook for the next financial year, considering the current economic landscape?
A: We expect to build on our second-half FY24 profitability, focusing on high-margin assets and cost discipline. We anticipate navigating the challenging economic landscape effectively, with no plans for a capital raise this financial year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
