Lending restrictions constrain bank's growth

by Manuelita Contreras23 Feb 2018

Regional bank MyState’s loan book grew 4.5% to $4.3bn in the first half of FY18 from December 2016 – growth that group executive mortgage broker Huw Bough said was constrained by regulations on interest-only and investor lending.

The increase is lower than the system growth of 6.3% for the 12 months to December 2017.

Without specifying amounts, managing director and CEO Melos Sulicich told Australian Broker that the bank’s investor lending book is growing at around 5% annualised, while its IO book is growing at about 20% per annum.

Both rates are well below APRA’s caps of 10% for investor lending and 30% for IO lending.

While the bank is known for targeting low-risk, owner-occupied lending, brokers staying away from investor lending has contributed to its limited growth in this space.

“They sort of say we are happy to do P&I business, particularly owner-occupied lending, but we can’t do investor lending,” said Sulicich.

Brokers account for the majority of MyState’s new loan book. The bank announced yesterday that broker-originated loans accounted for 74.5% of housing loan settlements in the first half of FY18, slightly up from 73.3% in the previous corresponding period.

Broker-originated owner-occupied mortgage applications with an LVR of less than 80% increased 49%, with broker-originated settlements increasing 15%.

Noting that the lending market remains highly competitive, Sulicich said his company continues to urge the government to embrace regulations that promote competition and benefit consumers.

These regulations include “changes to the framework that will enable smaller banks to compete on a more balanced playing field with major banks”.

The Tasmania-based bank delivered a net profit after tax of $15.8m in the six months to December 2017, up 4.0% on the previous corresponding period. Net profit before tax was $22.6m, up 7.7%.

Total revenue stood at $64.0m, while net interest income grew 6.8%.

Sulicich called these outstanding achievements in a highly competitive market “where regulation has distorted competition, disproportionately impacting smaller banks”.

In a press conference call yesterday, he said his company welcomes the discussion on competition in the banking space that was generated by the Productivity Commission’s recently released report.

“And we believe that including effective competition as an objective of the regulatory framework will benefit consumers and provide a more level playing field for smaller banks,” he said.

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