Release Date: August 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Auswide Bank Ltd (ASX:ABA, Financial) reported an 8% growth in customer deposits, reaching 75.3% of total funding.
- The bank's loan book demonstrated strong credit quality with arrears at just 20 basis points of total loans.
- The merger with MyState Bank Tasmania and acquisition of Selfco are expected to enhance scale and value propositions.
- The bank's capital adequacy ratio remains strong at 14.78%, well above board targets.
- Auswide Bank Ltd (ASX:ABA) has a strategic focus on inorganic growth, including potential future mergers and acquisitions.
Negative Points
- Net profit after tax was down 55% year-over-year, impacted by margin pressure in a competitive market.
- Net interest margin (NIM) decreased by 46 basis points to 142 basis points.
- High refinancing activity and competition for mortgages and deposits placed pressure on the bank's financial performance.
- Escalating costs related to inflationary pressures, regulatory demands, and technology investments impacted profitability.
- The bank underestimated the level and rate of increase in the RBA cash rate, leading to unexpected migration of customer deposits to higher-rate term deposits.
Q & A Highlights
Q: Can you provide some commentary on the migration of deposits from cash rate to term deposits and the impact on net interest margin (NIM)?
A: Doug Snell, CEO: The majority of the migration from low-interest rate environments to term deposits has already occurred. We don't expect a massive further migration. Our focus will be on targeting new markets to gain further retail deposits and replace transactional style deposits.
Q: What is your outlook on the Queensland economy and the impact of interest rates on the banking sector?
A: Doug Snell, CEO: The competition in the market is unprecedented, especially with brokers introducing a high percentage of new home loans. The squeeze on margins isn't going to reverse quickly. We believe the cash rate will stabilize around 3% to 3.5% in the next couple of years.
Q: How do you see the merger with MyState Bank impacting your growth strategy?
A: Doug Snell, CEO: The merger is a key strategic move for inorganic growth. We believe in achieving a size that allows us to be a long-term player in the Australian banking sector. The merger will help us leverage cost synergies and enhance our value propositions.
Q: Can you elaborate on the net interest margin (NIM) trends and the impact of fixed-rate loan maturities?
A: William Schafer, CFO: The average NIM for the year was 142 basis points, starting from a higher level and exiting in the low 130s. The benefit of fixed-rate loans maturing and rolling into higher market rates is contributing positively to the NIM.
Q: How do you plan to fund the projected $300 million loan growth for FY25?
A: William Schafer, CFO: We will focus on lower-cost deposit funding through customer deposits and partnerships. Securitization will be a fallback option if growth accelerates or if we don't meet deposit targets in a particular month.
Q: What are your expectations for cost growth in FY25, especially with the merger and technology investments?
A: William Schafer, CFO: We are targeting a cost growth rate of around 6% to 7%. The merger with MyState Bank will allow us to identify synergies and direct our efforts and expenses more efficiently.
Q: How did the fees and commissions line grow despite subdued lending growth?
A: William Schafer, CFO: The growth in fees and commissions was a carryover from substantial growth in the prior financial year. The effects of broker and deposit commissions carried over into FY24.
Q: What are your plans for managing costs and achieving synergies post-merger?
A: Doug Snell, CEO: We have identified areas for cost savings and synergies, particularly in IT and product aggregations. We will continue to streamline our operations and focus on efficient cost management.
Q: How do you view the competitive landscape in the lending market?
A: Doug Snell, CEO: The competition is intense, especially with brokers playing a significant role. We need to focus on both sides of the ledger—lending and deposits—to manage our margins effectively.
Q: What are your strategic priorities for the coming year?
A: Doug Snell, CEO: Our strategic priorities include growing our retail deposit base, reducing the cost of wholesale funding, and pursuing inorganic growth opportunities. We aim to achieve $300 million in loan book growth and improve our delivery and performance for customers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
