Broker mortgage volumes rise 10% at big four bank

Although the third-party channel still writes less than a third of NAB’s Australian mortgages (32.5 per cent, up from 31.13 per cent in March 2016) - or 38.2 per cent when excluding limit increases and redraws -  it delivered the largest channel increase in mortgage lending growth. Brokers delivered a 9 per cent increased in volumes, compared to the retail and UBank’s 4 per cent increase (to $103.2 billion) and the business and private channel’s 5 per cent change (to $89.7 billion).

In total, the bank’s Australian housing portfolio equalled $285 billion at the end of March 2017, up from $270 billion in the prior comparative period.

Over in New Zealand, brokers made more headway, with the proportion of home loans coming though this channel rising to 7.9 per cent from 2.9 per cent the year before. This amounted to NZ$2.8 billion of the NZ$36.2 billion of mortgages written in New Zealand.

The number of brokers recruited across NAB-owned aggregators PLAN, Choice and FAST increased by 3 per cent for the six months ending 31 March 2017, bringing numbers up to 4,446.

Days past due and gross impaired assets were roughly the same for proprietary and broker channels as at September 2016 (no later data is available) at around 0.7 per cent of total housing. The largest proportion of arrears and gross impaired mortgages were found in Western Australia while the lowest were in NSW/ACT.

Interestingly, the half-year results show that interest-only loans made up 41 per cent of new lending in the March 17 quarter, however NAB said that they expect to meet APRA’s 30 per cent limit by the end of the September quarter.

Although no details on how the bank intends to achieve this have been released (NAB Group CEO Andrew Thorburn told investors yesterday: “The current requirement is by the September quarter of this year that we are to be at 30 per cent of interest-only and so we will achieve that”), some banks — such as CBA — have taken measures to curb IO lending by ceasing acceptance of applications for investor refinancing from the third-party channel.

Looking at NAB’s Australian housing portfolio, owner-occupiers with interest-only loans made up 12.8 per cent of the book, while investors with interest-only made up just over a quarter.

The bank’s roll out of the Personal Banking Original Platform (PBOP), which completed in September 2016, has also helped deliver faster mortgage approvals, reportedly leading to 55 per cent of customers receiving an unconditional home loan approval within five days, compared to 7 per cent as at September 2016. Customers can also now get “instant conditional approval” for home loans through PBOP, and Mr Thorburn has said that soon, 93,000 customers will be pre-qualified for up to $2 million of lending.

NAB ‘feels OK’ about winding back on some mortgages

Speaking about mortgages to shareholders yesterday, the NAB Group CEO said: “We’ve made some more conservative settings over the last couple of years [for mortgages]. We feel OK about that, the ways we have dialled back on foreign, inner city apartments, investor – we’ve wound those back. Lower LVRs, better LTIs, so I think we’ve done a lot… we’re not driving multipliers of system as a slave-ish thing, we want the quality of the client and also we see the opportunity around the mortgage.”

He explained that the bank was keen to make sure mortgage customers had more NAB products: “If you go back to the client, the client is buying a home or investing. Around that they have other financial needs so we see opportunities for superannuation, credit cards, transaction accounts, mobile apps, all the things that hopefully make the customer a loyal, long-term NAB customer so the mortgage is a really important single bit. And if you get that right, you can have a customer for 10 years, 20 years. So that’s why we’re interested in mortgages”.

The half year results revealed that on a statutory basis, net profit was $2.55 billion, compared to a loss of $1.74 billion for the March 2016 half year. The improved result primarily reflected reduced losses from discontinued operations.

Excluding discontinued operations, however, statutory net profit decreased 11.4 per cent.

Cash earnings were $3.29 billion, an increase of 2.3 per cent. Again, NAB highlighted that the main difference between statutory and cash earnings relates to “the effects of fair value and hedge ineffectiveness, and discontinued operations”.

The consumer banking and wealth segment of the business saw cash earnings remain “stable” at $764 million, due to “higher funding costs, increased competition in home lending, and reduced wealth income”.

Speaking of the results overall, the NAB Group CEO said: “Revenue is up, our asset quality remains sound and we have further strengthened our funding and capital positions.”

He continued: “We continue to invest in creating a truly customer-centric culture at NAB, but we know we must do better to achieve a level of advocacy among customers that we can be proud of.”

In conclusion, Mr Thorburn said: “The operating environment for banks remains challenging, including heightened regulatory change, digital disruption and increasing stakeholder expectations. But Australia’s economic fundamentals provide a favourable backdrop including strong population growth and improving business conditions.

“In this environment we are well-placed to deliver for our customers and our shareholders.”

The interim dividend is 99 cents per share fully franked, unchanged from the 2016 interim and final dividends.

[Related: Broker share could reach 73%: NAB]