MyState's move to diversify its loan business outside Tasmania through brokers has not delivered on its expected growth, says a report.
Morningstar analyst David Ellis said APRA's latest banking statistics for November 2017 confirm a competitive landscape for the Tasmania-based bank. MyState's key home loan portfolio grew at less than 1% for the five months since 30 June, below system growth of 2.2%.
“Disappointingly, MyState's strategy of diversifying its loan book outside Tasmania and utilising the broker channel has not supported its loan growth as much as it expected,” said Ellis in a 12 January update.
Arthurmac & Co's managing director Stuart Styles
cites the competitive market as a reason for MyState’s little traction in broker distribution outside Tasmania. Brokers have a lot of options when it comes to lenders, making it difficult for a small regional player like MyState to break into the bigger national market.
“They are a lender in a small pond in Tasmania, and now they are wading into a big pond. It’s totally going to take time to gain traction,” said Styles.
Ellis noted that the bank is susceptible to pricing competition and underwriting risks with its lending portfolio heavily skewed towards owner-occupied home loans.
The majority of the bank’s new loan book comes from brokers, with much of its loan growth coming from its expanded distribution network outside Tasmania, particularly through brokers.
With Morningstar expecting the intense competition in the housing mortgage market to continue, things do not look rosy for the bank's expansion efforts outside Tasmania.
“MyState competes on great credit quality, but struggles to generate comparable margins due to its much smaller customer base and higher funding and operating costs,” said Ellis.
This high credit quality reflects the bank’s focus on lower-risk owner-occupied home loans with lower loan/value ratios, noted Ellis.
“Low loan impairment charges boost MyState's profitability, but do not outweigh its other cost disadvantages compared with the major banks.”
Besides increasing broker use, MyState has expanded outside its home base by improving geographic diversification and reducing risk profile.
Ellis expects the bank’s capital structure and solid balance sheet to help it manage a potential increase in mortgage loan losses.
Last year, MyState appointed its general manager for retail/business banking, wealth and broker, Huw Bough
, to head the broker channel, to strengthen its proposition for mortgage brokers.
To gain market share of the mortgage business through brokers, the bank has to build relationship with brokers and make sure they know its products, said Styles.