Suncorp – Page 4 – Digital Finance Analytics (DFA) Blog

Suncorp Lifts OO Mortgage Rates

Suncorp has announced an increase of 0.15% p.a. for its variable interest rates on new and existing owner-occupier loans from 23 January.

The changes apply to the bank’s Back to Basics and Standard Variable products, bringing the rates up to 4.97% p.a. and 5.55% p.a. respectively.

Suncorp has also increased its small business rates by 0.15% p.a. with the Business Essentials rate moving to 5.14% p.a.

The decision to increase rates was a result of balancing the needs of stakeholders, Suncorp banking & wealth CEO David Carter said.

“Increasing competition for quality funding sources, the cost of meeting regulatory change and events overseas that have altered the outlook for interest rates globally, have led to rising funding costs.”

He stressed that the majority of bank funding was dependent on these factors instead of the Reserve Bank of Australia cash rate. Rising costs have been driven by changes in regulation to bring in a stronger banking system, he added.

“While we have been absorbing these increasing costs, it’s evident that the trend is not likely to change. These factors are also impacting the broader industry, with many of our competitors implementing similar rate changes.

“We will also reverse recent reductions to interest rates on our 55 Plus Accounts, resulting in a 0.15% p.a. increase to our middle and top rate tiers. These accounts are typically used by pensioners and self-funded retirees.”

Suncorp-Metway pays $530,000 for breaching consumer credit notification laws

ASIC says Suncorp-Metway Limited (Suncorp) has paid infringement notice penalties totalling $270,000 together with remediation of $260,000 after ASIC found it breached important consumer protection provisions.

Due to an internal error, Suncorp failed to notify a large number of consumers of changes in the amount of their loan repayments and, in some cases, failed to advise the consumers of their first direct debit default. This led to some of the consumers inadvertently defaulting on their loans and being contacted by Suncorp’s collections team.

A lender must notify a consumer of changes to loan repayments (for example, amount or frequency of repayments) no later than 20 days before the change takes effect. Further, where a consumer’s direct debit has failed for the first time, the lender is required to send the consumer a direct debit default notice.

ASIC found that between November 2015 and March 2016, Suncorp:

failed to provide consumers with the required written notice regarding a change in loan repayments; and

failed to provide consumers with a direct debit default notice.

As a result of these failures, consumers were not given the opportunity to prepare for a change in their repayment obligations or may not have been aware that their direct debit payment had failed. Subsequently, some consumers were subject to collections activity, including telephone calls or letters from Suncorp’s debt collections staff.

ASIC Deputy Chairman Peter Kell said, ‘Companies engaging in credit activity need to ensure that their systems have rigorous checks and balances, so that when errors occur, they are detected quickly and don’t cause disruption to customers’.

‘A change in repayments can have a significant effect on a consumer’s household budget and consumers need to be given time to prepare for that impact. The law demands that lenders keep their customers informed.’

Suncorp has implemented a $260,000 remediation plan refunding any default fees and any interest customers incurred and has paid some consumers reasonable compensation where appropriate. Suncorp has written to all consumers who were affected by the above failures. Consumers who would like to discuss the matter further can contact Suncorp on 13 11 55.

Suncorp has also agreed to engage an external compliance consultant to review its processes and procedures in relation to the causes of the above breaches. The consultant’s report will be provided to ASIC.

Background

Suncorp provides finance to consumers for a variety of purposes, including home loans and motor vehicle finance.

The matter came to the attention of ASIC in March 2016 when Suncorp voluntarily reported the issue. Since becoming aware of the breaches, Suncorp has implemented new processes to prevent a similar occurrence of non-compliance with these provisions.

ASIC conducted its own investigation into Suncorp’s non-compliance. On 16 December 2016, ASIC issued 20 infringement notices totalling $270,000 for 10 breaches of section 65 (repayment changes) and 10 breaches of section 87 (direct debit default notice) of the National Credit Code.

The payment of an infringement notice is not an admission of guilt in respect of the alleged offence. ASIC can issue an infringement notice where it has reasonable grounds to believe a person or body corporate has committed an offence of strict liability against the National Consumer Credit Protection Act 2009 (Cth).

Suncorp Announces Third Party Role Changes

From Australian Broker.

Suncorp has announced the Head of its Wealth & Life Intermediaries team, Mark Vilo and the Head of its Bank Intermediaries team, Steven Degetto, will swap roles in 2017.

The announcement comes five months after Suncorp’s intermediary businesses were brought together under the leadership of Andrew Mair, to take advantage of the size and scale of the collective businesses, and to better serve intermediary partners and their customers.

Mair commented on the the role changes, saying they highlight the great bench strength in Suncorp’s intermediary team and allow it to start working with partners to build resilient and responsive businesses across the spectrum of financial services.

“The new appointments will give our intermediary partners the opportunity to benefit from the diversity offered by Suncorp’s senior leaders,” Mair said.

“Mark has more than 25 years’ of financial services experience and has been integral in the development and implementation of sales, product and marketing strategies across the independent financial advisers’ market.

“I have no doubt he will continue to build on the excellent results Steven has delivered for our banking brokers over the past three years.

“Steven has more than 20 years’ experience in the finance industry with the majority of this based in the intermediary channel.

“He has been instrumental in reshaping the business to deliver quality, sustainable growth and an exceptional proposition for broker partners and their customers, culminating in being named MFAA 2016 non-major lender [of the year].”

Mair said Mark and Steven are both passionate supporters of the value that intermediaries provide for their customers, and will bring that commitment and a fresh perspective to their new roles. “The role changes demonstrate the breadth of talent across Suncorp and the initiative underlines Suncorp’s commitment to being the partner of choice for intermediaries,” he said.

Of his new appointment, Vilo said: “I’m thrilled to be taking on the new role and looking forward to working in a dynamic market that shares similar challenges and opportunities that are being experienced in the independent financial advice market.”

“I’m very proud of the business the team we have created over the past few years. I have made a number of great friends and colleagues in this fantastic industry and I am looking forward to the opportunity to develop my expertise in a different type of intermediary business,” added Degetto.

Vilo and Degetto will start in their respective positions for a period of 12 months, effective 1 January 2017.

Suncorp 1Q Update – The Pressure Continues

Suncorp provided their quarterly statutory update today, as at 30
September 2016. Once again we see the pressure on regional players. Some relief may emerge when they move formally to advanced accreditation with APRA. Risks include a rise in bad debts, and the possibility of higher insurance claims though the summer storm period.

Suncorp’s lending assets remained broadly flat over the quarter at $54.1 billion, as the Bank actively managed volume and margin in a price driven market. Home lending was down 0.7% in the quarter, whilst business lending rose 1.5%. They have a 66% deposit to loan ratio.

Credit quality remained strong with gross non-performing loans decreasing 4.8% over the quarter to $581 million. Impairment losses of $10 million for the quarter represent an annualised 7 basis points of gross loans and advances, below the Bank’s 10 to 20 basis points expected operating range.

Gross impaired assets increased by $14 million to $220 million during the quarter, representing 0.41% of gross loans and advances. Whilst there is evidence the slowdown in the resource sector has had downstream impacts in some regional centres in Queensland, the impact is limited to a small number of exposures. The increase in the September quarter was driven by one mid-sized Commercial/SME loan with an indirect exposure to the downturn in the Queensland resources sector.

The balance of past due loans that are not impaired decreased by 10.6% to $361 million as at 30 September 2016. Retail past due loans decreased by $39 million to $319 million over the quarter. The favourable movement follows the embedding of enhancements to the collections system and processes that were disclosed with previous financial results.

Suncorp Banking & Wealth CEO David Carter said the Bank remained committed to driving sustainable growth, while prudently managing risk, liquidity and the funding mix. The Net Stable Funding Ratio (NSFR) was 111% at 30 September.

Modest growth in business lending continued during the quarter, with the commercial portfolio increasing 1.8% to $5.5 billion and agribusiness growing 1.1% to $4.4 billion. They are $480m in development finance across units, townhouses and other residential.

The home lending portfolio contracted marginally to $43.9 billion, as the Bank remained focused on sustainable and profitable lending. Since last year it has grown at 2.3%, well below the ~6.5% system rate. The quality of the lending portfolio remained favourable across a range of measures including quantitative serviceability parameters, credit quality and loan to value ratio (LVR), with 80% of new loans having a LVR of 80% or less.

Consistent with others in the market the Bank saw a sharp increase in term deposit funding costs following the May RBA rate cut. Whilst some of that pressure has recently abated, average funding costs will be higher than originally expected this half.

The capital position of the Bank is robust with a Common Equity Tier 1 (CET1) ratio of 8.92% as at 30 September 2016, at the upper end of the 8.5% to 9% target.

They continue discussions with APRA towards achieving Advanced Accreditation. Meantime, they are operating as an Advanced Bank, with strong risk management and advanced models in use across the business.

Suncorp closes eight Perth branches

From The West Australian.

Suncorp is all but quitting over-the-counter banking in WA, closing eight of its nine Perth branches.

The Queensland financial services group says the decision reflects the declining use of branches by customers, who are increasingly going online to do their everyday banking.

“The decision to close a branch is never taken lightly, but we’re finding that fewer customers do their banking at the branch,” Suncorp said in a statement.

“Since 2010, national over-the-counter transactions have declined by 30 per cent, from 685,000 to 478,000 in August 2015, while mobile transactions have grown from 312,000 transactions to more than 5 million in July 2015,” it said.

Banks, however, are also intent on cutting expenses in what is a low-growth environment, with Suncorp chief executive Michael Cameron telling shareholders just last month that “recalibrating” the group’s costs was a priority.

WA accounts for about 7 per cent of Suncorp’s $54.3 billion loan book.

Perth customers who prefer face-to-face banking will have to rely on the one branch not slated for closure, in St Georges Terrace.

The group was unable to say how many staff were affected by the closures, adding that it was trying to redeploy them elsewhere within Suncorp.

Suncorp Full Year Results, Feeling The Pressure

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.

Suncorp Launches Online SME Loan Lodgement For Brokers

From Australian Broker.

Non-major lender Suncorp Bank has launched online submissions for small business lending, in a move which it touts as an “industry first”.

Brokers lodging small business loan applications to Suncorp will now be able to do so electronically via NextGen.Net’s ‘ApplyOnline’ system. The non-major says this will translate to increased efficiencies, faster turnaround times and improved functionality for brokers.

Suncorp’s national small business manager, Robynne Frost, said the new process is one the solutions Suncorp is offering as a part of its commitment to support brokers diversify into small business lending.

“Suncorp Bank is committed to investing in technology to improve the lending experience for brokers and their customers,” she said.

“The addition of small business lodgement through ApplyOnline enables brokers to easily transition from home loans to small business with a streamlined ‘combination’ application.”

The non-major is also offering SME Masterclasses, BDM support and improved commissions for brokers operating in the SME sector.

“The SME sector represents a significant opportunity for our broker partners and Suncorp Bank is committed to supporting them as they look to expand and diversify their businesses,” Frost said.

NextGen.Net sales director Tony Carn said this announcement is market leading.

“Suncorp Bank has again shown market leadership in the broker channel through the rollout of ApplyOnline electronic lodgement for small business loans.

“In such a competitive and ever-changing market it is great to see Suncorp Bank going above and beyond to meet the needs of Australian brokers.”

Suncorp Intensifies Focus On Mortgage Brokers

From Australian Broker.

Suncorp Bank has launched a new reward program designed to reward loyal brokers of all business sizes and support their relationships with their customers.

The Elevate program offers brokers priority service and preferential turnaround times and is accessible to brokers at all business levels.

Suncorp Bank head of intermediaries, Steve Degetto, says Elevate doesn’t just favour the top loan writers and big broker businesses, making it one of the most equitable reward programs in the market.

“This new, innovative approach to reward and recognition means brokers don’t need to be big writers or have an enormous portfolio to realise the benefits, with all levels of business being rewarded.

“The program focuses equally on quality and volumes of business written, with the aim to provide strengthened customer relationships at every tier which is essential in such a competitive market.”

Degetto says the non-major is committed to investing in its third party channel and will continue to consult its broker network on how to invest further in the channel this year.

“Suncorp Bank is committed to developing sustainable long term relationships with brokers, and
Elevate is just one of the ways we aim to recognise and reward our broker partners.

“The program also demonstrates our focus on continuous improvement of our own business to fulfil broker needs.”

The program currently features three tiers: gold, silver and bronze. Each tier has access to unique special offers and dedicated support teams.

Suncorp Cuts Dividend

Suncorp reported their half-year profits to 31 December 2015 today. Group net profit after tax (NPAT) was $530 million, down on HY15 at $631 million, profit after tax was of $544 million compared with HY15 at $681 million, and return on average shareholders’ equity was 7.9%, compared with HY15 of 9.4%. An interim dividend of 30 cents per share fully franked was announced, down from 38 cents HY15.

Basically, after taking a hit on general insurance claims, releasing some reserves, growing the banking business, and driving efficiency savings, the bank has gone backwards. The new CEO, 100 days into the role has a struggle on his hands in the light of market conditions and uncertainties. It is true, that a pure play insurance business would have taken a harder knock, so the portfolio of businesses do offer some hedge. But there is much to be done.

Looking at the segmentals:

General Insurance reported a NPAT of $297 million compared with HY15 of $419 million, with an underlying insurance trading ratio (UITR) of 10.1% compared with HY15 of 14.8%), after adjusting for the impact of higher than expected natural hazards ($362m), investment market volatility and the continuation of strong prior year reserve releases. The bank pointed to both environmental and operational factors to explain the fall off in performance. There will need to be a strong focus on claims management efficency.

Personal Insurance Gross Written Premium (GWP) returned to growth, increasing by 0.6% as a result of increases in average premiums offset by the exit of some corporate partner relationships. This is the first time growth has been reported in five halves. Customer retention remained strong, demonstrating the strength of the Group’s brands and stabilisation in the personal insurance market.

Commercial Insurance GWP grew by 2.2% with a strong growth across the compulsory third party (CTP) portfolio, partially offset by a negative impact from the Western Australian Workers Compensation portfolio.

Compulsory Third Party (CTP) GWP grew 6.8% with Suncorp leveraging the scale of its national CTP model to continue expansion into the ACT market as well as benefitting from the withdrawal of competitors in key markets.

New Zealand GWP was up 2.6% (in $A terms) due to strong growth in personal lines.

Bank NPAT increased to $194 million compared with HY15 at $176 million as a result of improving credit quality and very low impairment losses, which fell to $11 million, or 4 basis points of gross loans, well below the expected range of 10 to 20 basis points of gross loans. Gross impaired assets reduced by 32.8% and total gross non-performing loans reduced by 15.1%.

Net interest income increased 2.4% to $566 million. The Bank’s NIM improved 2 bps over the half to 1.85% to sit at the top of the 1.75% to 1.85% target operating range, with market-wide repricing offsetting increases in funding costs and heightened competition, and the Cost to Income ratio of was 53.0% compared with HY15 of 52.2%.

Home lending grew 8.2% to $43.0 billion despite intense price competition particularly in the Bank’s traditional owner-occupied segment given the current regulatory landscape. Mortgage brokers are responsible for 63% of Suncorp’s $43 billion mortgage book, leaving its direct branch channel behind 37% of home loans settled. The Bank pursued growth outside its traditional Queensland market with 60% of new business originating interstate supported by strengthened capability in the intermediary channel. A disciplined approach to investor lending has seen growth reduce below 10% year-on-year. Business lending contracted 3.0% during the half to $9.5 billion, partially driven by better than expected seasonal repayments from cropping and livestock proceeds in the agribusiness portfolio.

Retail deposits remain the core source of funding, with a deposit to loan ratio of 65.6%, comfortably within the Bank’s 60% to 70% target range. The Group’s A+/A1 rating continued to provide a competitive advantage allowing access to both secured and unsecured funding markets and significant diversification and flexibility.

Impairment losses on loans and advances were $11 million, representing 4 bps of gross loans and advances. Gross non-performing loans reduced 15.1% to $557 million. Gross impaired assets decreased 32.8% to $176 million, representing 33 bps of gross loans and advances. Provision coverage remains appropriate and the Bank continues to retain the prudent $8 million drought overlay.

The CET1 ratio increased 30 bps to 9.45%, above the top end of the 8.5% – 9.0% target range. The Bank’s Return on CET1 continues to improve, up 90 bps to 13.1% and is within the Bank’s 12.5% to 15.0% target range. This improvement has been supported by the Bank’s Advanced Accreditation program, with a better understanding of risk selection, pricing and capital planning.

Suncorp Life NPAT was $53 million compared with HY15 of $86 million, with underlying NPAT increasing to $58 million compared with HY15 of $52 million, following the third consecutive period of positive claims and lapse experience.

After accounting for the interim dividend, the Group’s total capital position remains strong with CET1 capital of $506 million held above the Group’s operating targets. The General Insurance CET1 is 1.25 times PCA and the Bank CET1 is 9.45%.

Going forwards, the strategy appears to focus on cross-selling more products to existing customers, rather than growing the customer base. There will also be a focus on cost optimisation, including prospective benefits of $170m in 2018.

Suncorp Says Insurance Margins Impacted

Suncorp today reported that the increased cost of settling claims following last year’s record run of natural hazard events, combined with the lower Australian dollar, would impact the General Insurance margin for the half year to 31 December 2015.

Suncorp Group Chief Executive Officer (CEO) Michael Cameron said the Group had implemented a range of claims and pricing initiatives to take account of the increased volume and cost of claims. “While the industry remains very competitive, costs have been increasing as a result of the lower Australian dollar and the impact of the $4 billion of weather events during 2015. These increased costs will have a significant impact on the underlying margin in our Personal Insurance business,” he said. Personal Insurance CEO Gary Dransfield said a comprehensive program of work is underway to further improve claims processes.

“We are also working closely with our building panel and other suppliers to better manage costs,” he said.

In addition to the impact of working claims cost inflation in Personal Insurance, the underlying Insurance Trading Ratio (ITR) has also been impacted by:
• the $75 million increase in the natural hazards allowance which the Group had previously announced;
• higher than anticipated large loss experience in Commercial Insurance;
• increased claims frequency in Compulsory Third Party (CTP) insurance in NSW; and
• lower investment yields.

As a result, the underlying ITR is expected to be around 10% for the half year to 31 December 2015. The underlying ITR for the full year would be supported by increased claims management and pricing initiatives, as well as the Group’s Optimisation program which is on track to deliver $170 million of benefits in the 2018 financial year.

Commenting on the outlook for premium revenue, Mr Cameron said the Group was continuing to see the stabilisation of the Australian General Insurance pricing environment and increasing premiums had, to date, not had any material impact on retention rates.

As a result, the Group expects to report positive Gross Written Premium (GWP) growth for the six months to 31 December 2015. This compares to flat GWP growth and premium reductions across most portfolios during the 2015 financial year.

Mr Cameron said the Group’s reported profits would continue to benefit from releases from long-tail portfolios, which remain well above long-run expectations.

The continued absence of superimposed inflation and improvements in long-tail claims management are expected to result in prior year net reserve releases of between $120 million and $140 million or approximately 3% to 3.5% of Net Earned Premium for the six months to 31 December 2015. Mr Cameron said he had spent the first 10 weeks as CEO working with the team to gain a deeper understanding of all facets of the business, and meeting with employees, regulators, investors and others.

“The Group is in good shape other than the short-term operational challenges in General Insurance that we are highlighting today,” he said.

“I’m confident we can address these challenges and continue to drive changes that improve outcomes for our customers, shareholders and other key stakeholders.”

Suncorp’s detailed financial results for the six months to 31 December 2015 will be released on Thursday 11 February 2016. The Group’s interim dividend, based on the target payout ratio of 60% to 80% of cash earnings, will be announced on 11 February with an ex-dividend date of 18 February 2016 and a payment date of 1 April 2016.