CUA lending volumes take hit in ‘conscious’ move

This was down 35.8 per cent in new loans issued during the prior comparative period, H1-FY19, when $2.29 billion was issued.   

CUA Group CEO Paul Lewis said the lower lending volumes reflected a “conscious business decision” to maintain lending volumes at more steady levels across the full year, instead of concentrating lending growth in the first half of the year, as the group did in FY19.

“In the first half of last year, we saw record lending volumes, growing our home loan portfolio at three times the system rate,” Mr Lewis said.

“While this approach helped building our loan book in FY19, the rapid growth flowed through to our operating costs at a time when funding costs were high, requiring us to aggressively expand our deposit portfolio at the same time.

“CUA’s margins are among the tightest in the market. We know the challenging external environment will persist, so targeting growth more in line with system growth will help us better manage our net interest margin in FY20, and continue to maintain sustainable profits.”

The group said the new loan volume for H1-FY20 drove loan balance growth of 1.3 times the market average.

Owner-occupiers accounted for around 82.7 per cent, or $1.09 billion, of the $1.31 billion of new mortgage lending for the six months to 31 December 2019.

Investor lending totalled $227.7 million for the period.

“The split of owner-occupier and investor lending was relatively unchanged from the previous corresponding period, when owner-occupiers accounted for 82.5 per cent, or $1.78 billion of home lending,” the spokesperson said.

Broker channel a key driver

Speaking to The Adviser, a CUA spokesperson revealed that the broker channel remained a strong driver of CUA lending volumes.

However, volumes dropped in this channel as well, which was consistent with the lower lending volumes CUA saw across both broker and organic home loan channels.

“Brokers contributed 56.8 per cent of CUA’s new mortgage lending, or $0.78 billion of loans, during H1-FY20.

“This was down $460 million from $1.24 billion for the same time in FY19, consistent with the lower lending volumes CUA saw across both broker and organic home loan channels,” the spokesperson said.

“Importantly, the broker share of total lending remained relatively consistent, down only slightly from 57.7 per cent of new loans in H1-FY19.”

Brokers facilitate majority FHLDS applications

Looking forward, CUA Group has noted that it has received more than 250 applications for the First Home Loan Deposit Scheme since being appointed to the lending panel in December 2019.

The spokesperson told The Adviser that 70 per cent of these applications have come through the broker channel, which is “a much higher share than our average broker flow”.

“We’ve also seen that the average loan amount for FHLDS application is around 16 per cent higher than CUA’s average loan amount,” the spokesperson said. 

Overall half-year results

CUA reported that despite growth in the balance sheet, which was supported by steady growth in loans under management and retail deposits, its net profit after tax of $23.02 million for banking operations, or authorised deposit-taking institution was down 23.4 per cent on the prior corresponding period.

This decrease was attributed to the challenging external environment, as well as CUA’s “strategic investments”.

Overall, the group’s net profit after tax was down 7.9 per cent on the corresponding period a year ago to $21.25 million. This was also attributed to challenging external conditions, as well as the low interest rate environment, and costs associated with CUA’s decision to invest in member services.

“This challenging climate places sustained pressure on margins, reflected in our relatively flat net interest income. But we have remained focused on achieving sustainable profits that enable us to deliver competitively priced products, while supporting ongoing investment in the foundations for growth,” Mr Lewis said.

CUA said it has allotted a cash spend of nearly $40 million this year on projects that it said would help business to scale, and it included a streamlined lending origination system and optimising service channels.

The group partnered with Australian fintech Sandstone Technology in September last year to deliver a new lending origination system. Speaking of the project, Mr Lewis commented: “This is a substantial project that will streamline the home loan experience for our members across our broker, organic and self-service channels, supporting faster decision making on home loan applications and a smoother end-to-end digital home loan journey for members.

“We are on track to begin the first phase of the rollout in the coming months. This is an important foundational piece in allowing us to more efficiently scale our home loan business in the future.”

Mr Lewis added that CUA remains committed to investing in projects and technology despite tough operating conditions such as weak credit growth, aggressive competition for lending, and the prolonged low interest rate environment.

“We’ve made decisions across this first half that have influenced our position, including higher operating costs to accelerate the delivery of projects aimed at improving member experience,” Mr Lewis said.

“We’ve also kept members front of mind in managing the impact of the falling RBA cash rate. We’ve been conscious to balance the needs of both borrowers and depositors in our pricing decisions while ensuring key products on both sides of the book remain within the top quarter of the market on price.”

He concluded: “This challenging climate places sustained pressure on margins, reflected in our relatively flat net interest income. But we have remained focused on achieving sustainable profits that enable us to deliver competitively priced products while supporting ongoing investment in the foundations for growth.”

[Related: CUA launches financial accelerator program]