Suncorp reported their full year results to 30 June 2016. They made a net profit after tax of $1,038m compared with $1,133m the previous year, down 8.4%. The earnings per share is 85.41c, down 8.3% from last year. The return on average shareholder equity is 7.8%, down from 8.5% last year. The ordinary dividend is 68c per share, down 10.5% from last year.
Suncorp has taken a number of important steps to refine the business model and drive efficiency, but the complexity of General Insurance, Life and Banking divisions, and operations in Australia and New Zealand make it a complex management challenge. It is exposed to claims from natural disasters (all be it hedged) and to the housing sector, as well as market investments. A finger in very pie means risks across all sectors. Trade this against the potential to cross-sell across business lines. A tough ask.
Looking at the segmentals.
Suncorp bank increased its NPAT by 11% to $393m, thanks to home lending growth of 5.9% from $41.8 bn to 44.3 bn (though with notably slower growth in the second half) and business lending by $255m to $9.7 bn, so total assets grew by 4.5% or $2.4bn to $54.3bn before provisions. 81% of assets are housing. 35% of commercial lending was for property investment.
Looking at housing in more detail, 30% of the portfolio is investor lending, half of all loans are in Queensland, and 65% are originated via brokers.
7% of loans in the home loan portfolio are above 90% LVR, but only 1% of new loans are above 90%.
Loan to deposit ratio was 66.7%, up from 65.8% last year. At call deposit growth was 7.1%. Net interest income was $1.1bn an increase of 2.4%, with an increase in the NIM to 1.86%.
The cost income ratio was 52.5%.
Gross impaired assets decreased by 5.5% to $206m, or 38 basis points of gross loans. This was higher in the second half, from 33 basis points in the first half, but lower than last year, partly thanks to the write off of three mid-sized exposures totalling $19.9m. Past due loans increased by 1.1% to $610m and represents 1.12% of gross loans and advances.
Impaired losses were $16m, or 3 basis points, well below the typical 10 to 20 basis points. Last year impairments were $58bn.
The Banks CET1 was 9.21%, above the target level of 8.5% to 9%. The bank is operating as an advanced IRB bank, and the detailed review process with APRA for formal accreditation continues. They issues $3.6bn of wholesale issuance in the year of 3 and 5 year durations.
General Insurance NPAT was $624m with a reported ITR of 9.9% from a trading result of $782m. Total Gross Written Premiums increased 1.8% to over $9bn.
Personal Insurance GWP improved by 1.6% to $4.8bn, whilst commercial insurance was flat with growth in Australia offset by falls in New Zealand. CTP grew 9.2%
The General Insurance CET1 is 1.21 times the PCA, slightly above the target of 0.95 to 1.15. They purchased additional reinsurance protection for 2017, allowing for a net reduction in the natural hazard allowance for the 2017 financial year to $620m. Net claims were $5.7bn.
Suncop Life in-force premiums increased to $1.03bn, up 6.4%. Profit after tax was $142m, with underlying profit $124m, up 9.7%. Superannuation funds under administration was $8.2bn.
The group capital position is strong.
