​Adelaide boosts third party income 30%, ignores ‘price wars’

by Amy Rosenfeld18 Feb 2014
Following a strong half year result backed by significant growth in the third party channel, Adelaide and Bendigo Bank has said it will not be “sucked in” to the rate cutting game.

 Speaking at the announcement of the bank’s results yesterday, chief financial officer Richard Fennell admitted the bank has not been prepared to match current discounts offered in the mortgage market, particularly with regard to fixed rates.

“It’s a very competitive part of the market and a greater proportion of the population are choosing fixed rate mortgages than would normally be the case as they’re expecting that if we’re not at the bottom of the cycle we’re very close,” said Fennell.

“It’s important that we’re still competitive from a price perspective but we’re not going to be drawn into a position where we’re writing loans for the sake of market share and not returning an appropriate profit from those.”

Adelaide and Bendigo bank saw a profit of $100.1m in the third party space in the last half of 2013, up 30.3% from $76.8m in the half to June.

A long-overdue investment in processes and systems in the sector have contributed to this growth, said managing director Mike Hirst.

“We’ve been investing in our third party lending platform, which had received no investment for a period of about seven years leading up until now,” said Hirst.

“That’s been very well received in the broker and mortgage manager market. We’re now looking at what we need to do with our loans processing system and we’ve got people working on that. We’re pushing very hard to continue to improve that and I think the balance of that investment and seeking those efficiencies has come through in this result.”

Total net profits for the six months to the end of December were $180.7 million, down 4.6% on the first half of the year.

Cash earnings, however, were up 9.5% to $185.9 million.

Managing director Mike Hirst says a low credit environment has seen the bank’s growth “stymied”, it has also lead to increased early repayments on loans and therefore a lower rate of arrears.

“Ninety day arrears across all of our portfolios were down significantly half on half as people move to improve their equity position and security, and of course that’s a great thing for our customers,” said Hirst.

“We’re here to help customers become financially successful and the fact that they’re able to do that by paying down more debt in times of low interest is great for them, albeit it does make growth difficult for the organisation.”

Looking forward, Hirst expects to see growth continue in the third party market.

“We’re seeing good engagement with our partners through the business and I think we’ll see a little more confidence return to the market, that’s happening though the direct channel which we’re not represented in, and it’s only matter of time before we see that extend to partner channels and we want to be well positioned to take advantage of that.”