“The one thing that is different from the last interest rise cycle is the level of broker engagement with customers is now 70 per cent, and the fact we now have the best interest duty.”
AFG’s brokers have around $36 billion of fixed rate loans expiring over the next three years. All banks are concerned about the potential for churn to increase. Bendigo and Adelaide Bank said earlier this month that 20 per cent of customers whose special fixed rates had expired over the past three months had gone to another lender, higher than average.
Resimac prime loans down
On Friday, non-bank lender Resimac, which makes 85 per cent of its loans through brokers, including AFG’s, came under pressure from analysts questioning tighter interest margins amid fierce competition for high-quality borrowers and higher rates of churn.
Resimac’s full-year results showed that its “prime” loan book fell from $9.3 billion to $9.1 billion over the year, with the customer run-off increasing in the second half. This came after Resimac was forced to lift interest rates by more than the Reserve Bank’s cash rate rises, to offset margin pressure as its funding comes from capital markets rather than deposits.
“It still fiercely competitive and the major banks appear to be jumping over each other just to hold [loan levels] in that [prime] space,” said Resimac CEO Scott McWilliam.
“The market is off in terms of activity, and a lot of that is due to uncertainty as to where rates will land. There is a lot of noise as customers get a letter every four weeks on rate increases, which is putting a dampener on activity and people moving.”
For mortgage-market watchers, AFG’s result slide pack on Friday contained a few alarm bells: mortgage lodgement at its brokers in July was down 12 per cent compared to July 2021, and 24 per cent lower in NSW, a drop-off Mr Bailey struggled to explain. He said the RBA interest rate rises have had the intended impact of slowing the market.
Resimac reported full-year net profit of $86.2 million, down 16 per cent, as it lifted provisions. Its net interest margin contracted to 1.81 per cent, down from 2.07 per cent last year.
AFG, meanwhile, reported net profit of $61.3 million, up 20 per cent, after removing impairments including $15 million after Volt Bank, in which AFG had an equity stake, was forced to shut its doors.
AFG expanded distribution reach with a strategic investment in Thinktank and the acquisitions of Fintelligence and BrokerEngine during the period.
AFG and Resimac are also making a push into asset finance and commercial lending, using existing distribution capability to attract small businesses looking to shop around for better deals like more than two-thirds of all mortgage customers do.
AFG shares were up 6 per cent at $2.01 early on Friday afternoon, while Resimac stock was up 1 per cent to $1.30. AFG increased its final dividend by 30 per cent, bringing the total dividend to 16.6¢ per share; Resimac lifted its full-year dividend by 25 per cent to 8¢ per share.
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