Bendigo and Adelaide Bank signals cheaper funding for new mortgages
Bendigo and Adelaide Bank has further signalled the likelihood of banks cutting their variable mortgage rates independently of the RBA with its interim results showing a decrease in the cost of raising wholesale mortgage funding.
The bank launched its latest $850 million residential mortgage-backed securities (RMBS) offer, backed by prime residential mortgages, at 95 basis points above the one-month bank rate.
Bendigo and Adelaide Bank managing director Mike Hirst said this was the best-priced securitisation offer since the GFC.
In December, the bank priced RMBS at 110 basis points and in November they were priced at 135 basis points.
Under securitisation, a lender bundles together short-term funded mortgages into tranches and then sells the debt to institutional investors in offshore markets.
Hirst attributed the cheaper source of funding to ratings upgrades and a general market improvement, which had provided wholesale funding opportunities.
It follows the Commonwealth Bank pricing $400 million worth of AAA-rated RMBS at around 80 basis points over the three-month bank rate and Westpac placing $1.9 billion worth of Class A-1 notes RMBS at an 85-basis-point spread, both deals indicating that wholesale funding costs are easing up.
Alongside the improved funding scenario, Bendigo and Adelaide Bank reported a rise in profits and a “marked improvement” in both its net interest margin and cost to income ratio.
The bank reported an after tax statutory profit of $189.4 million for the 6-months ending December 31 December 2012, up 227% from $57.9% in the corresponding period in 2011.
Underlying cash earnings were $169.7 million, an increase of 4.4% on the prior corresponding period.
The net interest margin grew by 9 basis points to 1.83%, predominantly driven by mortgage repricing benefits.
“Importantly, funding costs have been easing throughout the half, which if maintained will continue to support the bank’s margins,” said Nomura banking analyst Victor German.
German said the interim results “reinforces the recent sector trend with mortgage re-pricing benefits combined with an easing in funding costs to result in improved retail margins”.
“Offsetting this, however, were a couple of specific credit quality issues which concern us, specifically its Queensland exposure (the bank has an arrears rate of 1.2% for mortgages more than 90 days in arrears, significantly higher than Bank of Queensland at 0.7%) and the Great Southern [collapsed forestry group] portfolio, which resulted in increased bad and doubtful debt charges in the first half of 2013,” says German.
The bank announced an interim dividend of 30 cents per share, fully franked.
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The current policy solves a short-term problem by creating jobs in the building sector, but in the long run it is likely to place young first home buyers under financial pressure.