The model acts like a funding conveyor belt. BNK and its partners supply the cash, which the non-banks then on-lend to their customers.
The bulk of the money comes from big-name investment banks, with BNK adding a strategic layer of its own capital. The non-bank lender then tips in the final tranche, taking on the riskiest position in the stack and it is the first to wear any losses in the event of default.
BNK closed two warehouse facilities transactions during the quarter, including its first in July and a second at the start of October. The move to embrace the structured credit sector has allowed the bank to diversify its credit exposure and scale high yielding investment opportunities, while only using a fraction of its balance sheet.
BNK also offloaded a large chunk of its non-core legacy Adelaide Bank loan portfolio to Bendigo Bank at the start of the month. The sale, worth $2.75 million, represents roughly 40 per cent of that remaining portfolio. The company says it will streamline operations by freeing up staff and systems capacity.
The deal will result in a modest $88,000 one-off statutory loss in the December quarter however it is expected to sharpen BNK’s focus on its growth engines.
Total deposits eased slightly to $994 million, giving a deposit-to-loan ratio of 106 per cent and reinforcing BNK’s strong liquidity footing. Capital adequacy remained robust at 28.6 per cent, only marginally down from June’s 29 per cent, while net tangible assets held steady at $1.00 per share.
Loan arrears remained within expectations, with 90-day residential arrears improving to 1.04 per cent, with Savins saying the Reserve Bank’s August rate cut had started to ease pressure on BNK’s customers.
Operating costs rose 13 per cent from the prior corresponding period as BNK continued to invest in people and technology. Management said those costs were strategic, designed to build capability and support the bank’s transition into higher-margin, scalable lending.
BNK’s September quarter appears to paint the picture of a small bank thinking big and one that’s steadily swapping volume for value. With higher-yielding loans climbing, structured credit deals bedding down and a clean, well-capitalised balance sheet behind it, the company looks well placed to keep widening its margins.
If the early numbers are any guide, BNK’s measured march into the high-return lending arena is only just getting started.
Is your ASX-listed company doing something interesting? Contact: mattbirney@bullsnbears.com.au
