ME Bank lifts profit by 20%, increases customer numbers

Despite the pandemic and a redraw issue, ME Bank posted an increased profit and lifted customer numbers.

Mr Crane said the bank grew its margin by not participating in a frenzy of rate adjustments when the pandemic hit.

ME Bank has increased its annual profit by 20 per cent after a tumultuous year, despite taking a $42m hit from bad debts.

The bank, which is owned by 26 industry super funds, recorded a statutory net profit after tax of $80.8m, compared with $67m in 2019.

Underlying profit was $123.9m – 24 per cent up on the previous year, but a $42m provision was made for bad debts relating to COVID-19.

ME Bank acting CEO Adam Crane told The Australian that at its peak, around 10 per cent of the bank’s home loan customers had deferred their mortgage under hardship provisions.

“We had around 10 per cent of our home loan portfolio that went on to deferral, now it’s down to around 7 per cent, or about 5000 customers that are still on that home loan deferral.”

“The majority of customers are able to go back to full repayments without needing to switch to interest only, but some can’t because they are yet to find full employment and our priority will be to support them.”

ME Bank’s profit was driven by higher net interest income, which increased seven basis points to 1.66 per cent, as well as a “significant” reduction in the cost-to-income ratio from 64.8 per cent to 58.5 per cent.

Return on equity increased by 180 basis points to 9 per cent and the bank’s asset base grew two per cent to $31.5bn.

Mr Crane said the bank grew its margin by not participating in a frenzy of rate adjustments when the pandemic hit.

“In the market we saw things like term deposits go up well over 2 per cent when COVID hit – we didn’t go up there,” Mr Crane said.

“We saw home loans go hyper competitive and we didn’t really chase after that.

“We also reduced costs by renegotiating with suppliers and we had some contractors in the business that were working on a number of projects that were either completed or we re-prioritised … We wound down the number of contractors by about 100.”

Deposits were the strongest part of the expanding asset base, growing 5 per cent to $17.2bn.

Home loan portfolio grew

The home loan portfolio grew by 2 per cent to $25.5bn.

Mr Crane said that larger deposits were supported by a 7 per cent increase to customer numbers to 551,559.

“We grew because our brand is strong,” Mr Crane said.

“Growth was primarily in the deposit book because our online saver account is probably one of the best in the market, it’s got competitive rates and simple features.

That’s where a lot of customer growth has come from and I also think people want a different brand – they don’t want to always deal with the majors.”

The increase in customer numbers comes despite public backlash earlier in the year when a decision to change the rules regarding redraw facilities for some customers without prior information, reducing their ability to withdraw money paid on existing home loans.

A House committee later heard that the change impacted 21,790 customers and lowered redraw accounts by $17,500 on average.

It was also revealed that issues around the automatic adjustment of redraw facilities had been a known problem at the bank since 2013.

Mr Crane told The Australian that he was sorry for not informing customers about the changes and that impacted customers have been given the option to fully or partially reinstate their redraw facilities.

Communications wrong

“We got the communications wrong, and we do apologise for that,” he said.

“About 23 per cent of affected customers have asked for a partial or full reinstatement of that redraw limit, which is about 5000 people.

“The intention behind it was to prevent customers falling into financial difficulty.

“We’ve been checking in with customers who have reverted to make sure they understand the implications of drawing down on their mortgage.”

Former ME Bank CEO Jamie McPhee resigned in July in the wake of the scandal, but said the decision was unrelated to the redraw situation.

ME bank’s historically strong focus on home loans continues, with the bank settling $5.5bn worth of new mortgages over the financial year, down 15 per cent on the previous year.

Mr Crane said loan growth was slowed by an increase in outflows as customers took advantage of lower interest rates to refinance.

“In the hyper-competitive home loan market in the second half of the year, new business slowed, and we experienced outflows as a result of the ultra-low rates and large cash-backs being offered by some competitors,” he said.

Going forward, Mr Crane said home loan growth would continue as parts of the market recover and the bank’s funding costs decrease, allowing them to compete in the competitive mortgage market when there is a business case to do so.

“I think there is going to be growth in pockets,” Mr Crane said.

“There are sections of the markets with no restrictions that are going quite well and haven’t seen the price reductions to date that were forecast early on.

“But I don’t expect high growth by any means. We are expecting two per cent system growth for the full year, and that’ll be across different markets.”

Mr Crane said he supported the reopening of state borders by Christmas to support economic growth.

ME Bank increased its capital ratio to 9.8 per cent, an increase of 30 basis points and continued its longstanding tradition of refraining from paying a dividend to its owners.

Mr Crane said that in the year ahead the bank will take a cautious approach to growth and seek to further strengthen its balance sheet while supporting its customers.

“With ongoing economic uncertainty and the impacts of the COVID-19 pandemic still playing out, we continue to take a cautious approach to ensure we actively manage our capital, liquidity and funding,” he said.

“We’re well positioned to grow through the pandemic and our main focuses are to support our customers and keep our staff safe.”