Release Date: August 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Statutory net profit after tax increased by 9.7%, supported by unrealized gains in the Homesafe portfolio.
- Customer numbers increased by 9.1% over the year, reaching over 2.5 million customers.
- Business and Agribusiness division saw a 13.4% increase in cash earnings year-on-year.
- Digital mortgage settlements increased by 3%, now making up 19.3% of all settlements.
- The bank's Net Promoter Score is 27.9 points above the industry average, indicating strong customer satisfaction.
Negative Points
- Cash earnings for the full year decreased by 2.6%, reflecting a weaker first half.
- Operating expenses increased by 5.8%, with investment spend contributing to a 4.6% rise.
- Consumer division cash earnings were down 7.6%, as the bank prioritized margin over volume.
- Gross impaired loans increased slightly, now representing 17 basis points of gross loans.
- The bank's Homesafe portfolio is now closed to new business as of July 01, 2024, which will reduce income over time.
Q & A Highlights
Q: The underlying drivers look stronger than in the first half, although quarter-on-quarter, your NIM hasn't moved. Has the rate of improvement in net interest margin peaked?
A: There are known tailwinds and headwinds, but we've seen more stability in the last six months. Benefits from the November cash rate rise and our replicating portfolio continue, though at a reduced rate. We expect more stability in margins through FY25. (Andrew Morgan, CFO)
Q: Could you update us on your approach to pricing term deposits and if we should expect this mix to continue to come down?
A: Competitors are pricing sharply in certain tenors. We rarely compete to be the sharpest in the market. Our savings product, EasySaver, is growing strongly and offers a superior margin to term deposits. (Andrew Morgan, CFO)
Q: How far through the broker platform rollout are you, and where do you expect broker settlements to get to when fully operational?
A: We have onboarded all brokers and aggregators. The platform is performing well, and we are now focusing on onboarding our retail network. We don't target specific proportions but aim to support the broker channel efficiently. (Marnie Baker, CEO & Andrew Morgan, CFO)
Q: How much lower is the cost of new digital deposits versus existing deposits, and will this be a material margin tailwind in FY25?
A: Our front book rates for EasySaver are materially lower than term deposits, providing a meaningful margin benefit. (Andrew Morgan, CFO)
Q: What is the FY24 starting point for costs, and how should we think about the impact of investment spending and large abnormal items like remediation going forward?
A: We've estimated and set aside amounts for remediation. We expect BAU cost growth to remain below inflation, with increased investment in growth engines. (Andrew Morgan, CFO)
Q: Can you explain the benefits of moving to one core system in FY25 and its impact on BAU expenses?
A: Consolidating to one core system reduces risk and operational costs, providing scale benefits and efficiency in making changes. (Marnie Baker, CEO & Andrew Morgan, CFO)
Q: What are the bigger risks or obstacles to delivering on financial targets and metrics?
A: The pace of change and unforeseen challenges are significant risks. However, the organization has a strong purpose and resilience to face challenges. (Marnie Baker, CEO)
Q: How do you view the future of your community banking business model within the context of digital transformation?
A: Our community model is different from BOQ's private franchise model. It is lower cost and highly engaged, supporting growth and funding. We are also digitizing the model to ensure its relevance. (Marnie Baker, CEO)
Q: Can you explain the impact of the replicating portfolio tailwind on margins and its sustainability?
A: The benefit will be more significant in the first half of FY25, with a tail-off expected in the second half. The portfolio provides downside protection, but the competitive environment remains an unknown factor. (Andrew Morgan, CFO)
Q: What are the strategies to grow Up's average deposit per customer, given the current small average deposit size?
A: Up targets younger customers, so average deposits are naturally smaller. We aim to grow with these customers as their financial needs expand. Specific strategies are in place to deepen relationships and grow deposits. (Marnie Baker, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
