Rising interest rate costs hit Liberty Financial’s interim results

A rapid run up in lending rates has crunched profit margins at Liberty Financial.

Liberty Financial CEO James Boyle, left, and CFO Peter Riedel. Picture: Aaron Francis

Lender Liberty Financial has stopped short of passing on a funding cost blowout to borrowers in a bid to keep them from switching lenders, in a move that contributed to profits taking a 14 per cent hit.

The ASX-listed motor, home, and personal lender on Monday booked underlying profit of $104.8m for the six months to December 31, down from $122.3m a year earlier.

Revenue fell 4 per cent to $311.4m, despite continued growth in its loan book.

The drag on Liberty Financial’s net interest margin pulled down returns across the business.

Net interest margin fell to 2.87 per cent from 3.14 per cent “as a result of not passing on all cost of funding increases to customers”, Liberty Financial said.

Liberty chief financial officer Peter Riedel said the lender would only pass on the cash rate increases to borrowers and not the full increase in wholesale funding costs, unlike other non banks.

“We’re very mindful of the impact of successive interest rate increases,” Mr Riedel said. The Reserve Bank has made nine rate hikes since May.

He said Liberty Financial was cautious any attempts to push through higher funding costs could drive borrowers to other lenders.

“We need to balance our objectives in the interest of our shareholders,” he said.

“The reality of the current market is customers are looking more at a wider range of lenders and moving quicker than they have for some time.”

Liberty Financial raised and renewed $5bn in debt funding after June 30, with ratings agency S & P affirming the lender’s investment grade corporate grading at BBB, with a positive outlook.

Liberty CEO James Boyle (left) and CFO Peter Riedel. Picture: Aaron Francis/The Australian

Financial assets across the group rose 6 per cent to $13.2bn over the six-month period.

The lender said this was aimed at “building durable business value”, but noted as rates rise Liberty Financial would “work with our customers to manage the impact of higher repayment obligations”.

But Liberty Financial warned there was further uncertainty in store, telling investors “At the date of signing of the financial statements, there is still significant uncertainty on the ultimate impact of slowing economic growth, rising interest rates and inflation on domestic and global economies”.

“Given the high degree of estimation uncertainty, management cannot reasonably assess or quantify the potential short or longer term financial impact on the Liberty Group,” the lender said.

Impairment of financial assets more than doubled to $3.7m at the end of December from $1.7m at the end of June.

No interim dividend was declared, but Liberty handed investors 21c in November for the five months of earnings.

Mr Riedel said the lender’s capital and liquidity position “remains in a strong position to support our growth ambition”.

“The net interest margin result is a further demonstration of LFG’s focus on building durable business value,” he said.

“To date our customers have demonstrated tremendous resilience in successfully responding to rate increases.”

The non-bank lender hit ASX-trading boards in December 2020 at a $2bn valuation after long time Credit Suisse banker Sherman Ma finally landed Liberty Financial on the market.

Shares in Liberty Financial climbed 0.8 per cent on Monday to close at $3.78.