17-Sep-2020 • Corporate

ME Bank today announced its financial results for the year to 30 June 2020, with statutory net profit after tax (Statutory NPAT) up 20% on the previous year to $80.8 million, achieved after factoring in COVID-19 related bad debt provisions.

Underlying net profit after tax (Underlying NPAT) was up 24% on the previous year to $123.9 million, reflecting higher net interest income and a significant reduction in cost-to-income ratio.

Year to 30 June FY20 FY19 Change
  • Statutory NPAT
$80.8m $67.1m +20%
  • Underlying NPAT
$123.9m $99.8m +24%
  • Net interest income
$457.1m $414.1m +10%
  • Operating expenses
$268.6m $267.1m +1%
As at 30 June:      
  • Home loan portfolio
$25.5b $25.1b +2%
  • Customer deposits
$17.2b $16.3b +5%
  • Total assets
$31.5b $30.9b +2%
Key metrics:      
  • Net interest margin
1.66% 1.59% +7 bps
  • Cost-to-income ratio*
58.5% 64.8% -630 bps
  • Return on equity*
9.0% 7.2% +180 bps
  • Common Equity Tier 1
9.8% 9.5% +30 bps

*Calculated on an underlying basis                                                                                                        bps = basis points
ME Bank’s Acting Chief Executive Officer, Mr Adam Crane, commented: “ME’s strong financial results for FY20 demonstrate the business’ resilience in the face of the COVID-19 pandemic and its impacts on the economy, customers and the banking sector. The continued growth the business is achieving, with total asset growth of 2% and return on equity increasing 180 bps to 9.0%, is evidence of the ongoing success of our strategy of creating a genuine banking alternative for everyday Australians.

“Statutory NPAT was $80.8 million, up 20% on the prior year, and includes the impact of COVID-19 bad debt provisioning of $42 million and our ongoing investment in transitioning to a single core banking system.

“We achieved a 24% uplift in underlying net profit after tax to $123.9 million. In heightened market competitiveness, we focussed our attention on profitable, sustainable growth. In response, net interest income increased by 10% to $457.1 million and our home loan portfolio increased by 2% to $25.5 billion.

“The year was characterised by aggressive price competition, low growth, and subdued consumer confidence. These conditions intensified in the second half, with the onset and impacts of the COVID-19 pandemic.

“Notwithstanding these sector and economic conditions, customer numbers increased by 7% to 551,559, reflecting the effectiveness of our drive to deliver simple, transparent, and competitive products and services that help all Australians get ahead.

“Our increasing customer numbers, particularly across the deposit portfolio, have supported strong management of our balance sheet and funding costs, resulting in improved margins and a stronger capital position. Net interest margin increased by 7 bps to 1.66% compared to the previous year.

“The management of costs and embedding operational efficiencies has contributed to a significant reduction in our cost-to-income ratio, reducing by 630 bps to 58.5% from 64.8% in the prior year.”

Financial & business highlights

  • Underlying NPAT was $123.9 million, an increase of 24% on the previous corresponding period.

  • Return on equity increased from 7.2% to 9.0% as at 30 June 2020.
  • Cost-to-income ratio decreased by 630 bps to 58.5%.
  • Customer numbers increased by 7% to 551,559.
  • Total assets grew by 2% to $31.5 billion.
  • Growth in customer deposits by 5% to $17.2 billion.
  • New home loans settled - $5.5 billion.
  • Common Equity Tier 1 strong capital position maintained: ratio of 9.8%, up 30 bps compared to the previous corresponding period.

 COVID-19 and business continuity

Mr Crane commented: “The COVID-19 pandemic is causing disruption and considerable distress to many Australians. During this time, ME’s priority has been on the welfare of our people and our customers.

“ME is a purpose-driven organisation with a mission to help all Australians to get ahead. In the face of significant economic uncertainty and financial stress, our people have stepped up admirably to support our customers in this time of need, and we will continue to do so.

“To deliver this necessary support, ME adapted quickly to the COVID-19 environment. Our branchless business model, team culture and size have allowed us to address the challenges of the pandemic for both our people and our customers. We were quick to adapt our systems and processes to support customers, working with key business partners to offer new ways for consumers to access the banking services they needed.

“For example, ME was one of the first banks to pioneer a new virtual customer verification system to ensure our well-developed team of mobile lenders and broker partners could continue to support and service customers while maintaining safe social separation.”

Deposit and home loan growth

Funding quality improved across the year with household deposits constituting 59.4% of ME’s loan assets (excluding securitisation), up from 56.3% in June 2019. This was driven by a $0.9 billion increase in customer deposits, up 5% to $17.2 billion.

Mr Crane commented: “We have continued to develop our deposit products to be more customer-centric, so it is pleasing to see the attractiveness of these products and our brand recognised by customers and reflected in the growth in the deposit book.

ME settled $5.5 billion in home loans during the financial year, down 15% on the previous year, with the home loan portfolio growing by 2% to $25.5 billion. After strong system growth in the first half of the year, overall home loan growth finished at 0.7 times system.

Mr Crane said: “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. We made the decision to pursue profitable growth in this segment in order to maintain net interest margin and focus on longer-term, sustainable home loan growth.”

Product and service development

In an important milestone for product and service delivery and ME’s strategy of IT simplification, the bank continued the upgrade of its core banking system, progressing further towards one platform with all retail products now originated on the core banking system. These enhancements included the advent of Open Banking infrastructure and advances to the bank’s processing capacity, efficiency, and performance. This program included the launch of the capability for customers to receive fast payments via the New Payments Platform, which significantly reduces customer payment transfer times, as well as the launch of Apple Pay.

Outlook and conclusion

“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. Our balance sheet has strengthened during the year and we are in a strong financial position.

“With interest rates at record lows, and in our view remaining low for some time, we will continue to focus on profitable, sustainable long-term growth and will execute our business strategy accordingly.

“Helping Australians get ahead is at the core of everything we do and is why we will continue to support the financial wellbeing of our customers and communities and be the genuine banking alternative that Australia needs during this time.”


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