Good day, and thank you for standing by, and welcome to the Bendigo and Adelaide Bank 20 21 Full Year Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Session. Please be advised today's conference is being recorded. I would now like 10 conference.
Over to your first speaker today, Maureen Baker, Managing Director for Bendigo and Adelaide Bank. Thank you.
Good morning, everyone, and welcome to the market briefing for Bendigo and Adelaide Bank's Financial Year 2021 Full Year Results. Let me first begin today by acknowledging owners of the lands on which we meet. For me here in Bendigo, that is the Dja Dja Wurrung people of the Kulin nation. I pay my respects to their elders past, present emerging and extend my respect to the Aboriginal and Torres Strait Islander people who are present on the call today. I'm Marni Baker, the Managing Director of Bendigo and Adelaide Bank, and presenting with me today is the company's Chief Financial Officer, Travis Krauch.
Also joining us on the call is Company's Chief Risk Officer, Tazo Corollis, who will be available to take any questions alongside Travis and I at the end of the presentation. So today is an exciting day for our bank. As well as announcing a strong FY 'twenty one results, we which clearly demonstrate our strategy of delivering, we are also very We'll see us internalize Ferocious market leading digital and technology capability and consolidate ownership of UP, Australia's 1st strategy with total lending growth of 10.6% and deposit growth of 12.5%, both well above system reflecting the strength of our brand and executional capabilities. Cash earnings were up 51.5%, supported by above system lending growth, Continued margin management, sustainable cost reductions across the business and an accelerated level of investment in the growth and transformation of the bank. This strong and continuing growth was achieved whilst delivering near flat operating expenses COVID collective provision release that was announced on the 5th August reflects our conservative and diversified credit risk and Well Secured Portfolio.
In June, we reinstated support packages for our customers impacted by the recent And whilst to date, we have only seen a modest number of customers seek assistance, we are conscious that behind each and every number is a person, a family a small business. We treat each situation individually with care and respect, and through our experience, we are confident $0.50 per share. A number of Australians selecting us as their
4th
quarter. And net promoter score of 27.3 remains well ahead of the industry average, nearly 26 points higher and almost 30 points higher than the average NPS of the major bank. This sentiment was also reflected through our business with a net promoter score well above both industry and the average of the major banks. Consistently strong Total lending growth for the year was a standout at 3.8x system, while our residential lending grew by a record 14.8 percent or 2.8 times system, predominantly in owner occupied and principal and interest loans. And this was further bolstered This growth has not come at the expense of asset quality, rather it reflects the strengthened executional capability, success in partnering challenging times.
Our strategy is driving results. Full year cash earnings of 4 $4,000,000 Total income of $1,700,000,000 was up 4.5% percent in the medium term. We will continue to act with flexibility around our accelerated transformation, so we can further simplify our business and support continued full growth. We further strengthened our capital position with common equity increasing 32 basis points on the prior corresponding period to 9.57%. Our consistently strong position reflects a well managed balance sheet dollars for the year, up 43.4 percent on the prior corresponding period.
A final dividend of $0.265 per share has been declared, Contribution for the consumer division, the largest of our divisions, was up 9%, whilst operating expenses were down 2 4.5%. Our consumer division is now into its 3rd year of outperforming system as our customers and partners continue to respond to the experience Smartness. Continued strength in agricultural conditions supported the strong performance of the Bank's Agribusiness division, with cash earnings contribution up 28.3% and operating expenses down 3.5 full year. The division was also recognized by its customers for the support we provided to those impacted by COVID foreign investment in relationship bankers, resulting in Business Banking continuing to maintain its exceptional Net Promoter Score. Cash Earnings contribution for the Business Banking division was up 29%, whilst operating expenses were down 10.7%.
Our vision remains true to be Australia's bank of choice to those who bank with us, work for us, partner with us And of course, invest in us. Our purpose of feeding into prosperity not offered is our anchor underpinned by a strong culture, value set and risk appetite, which provides us with a clear identity of who we are. We have an ambitious agenda and are moving the dial further than ever before to reduce complexity and remove costs, while at the same time, uplifting the capability of our people and systems and getting our story out there to all our target audiences. Through our actions, we've carved out a unique place as a trusted customer and community focused bank. Customer Advocacy.
The genuine connections we establish are grounded in our enduring purpose, informing who we are today and where we see ourselves in future, a future we are genuinely excited to help shape. We value the power We are strategically aligning our business footprint to opportunities in key geographies, industries and market segments And that's why we're continuing to build and uplift our capability, whilst at the same time modernizing and transforming our business, And that is vital and that's vitally important for our future. Customers will always be at the center In line with our strategic imperatives to reduce complexity, invest in capability and tell our story, this year, we continue to simplify and modernize 4. We implemented 4. 2 ways of delivering learning to our skill our staff, building better capability and productivity, and accelerated our cloud journey, successfully moving 7% of applications to the cloud.
Our review of operating structures resulted in a 6 4% reduction in FTE numbers, reduced the number of suppliers by 24% and achieved our targeted procurement savings of 21 $600,000 for the year. Our branches remain a critical part of our retail distribution strategy, and they are world opening during the year. We've also invested in digital coaching in every branch to assist with upskilling customers, Increased our mobile relationships managers by 27%, which drove a 63% increase lending settlement and delivered a 34% uplift in servicing productivity across the branch network. Our partnership with percent and further accelerate its growth as Australia's leading digital home loan platform. TikTok signed its growth trajectory in FY 2021 with a 55% increase in home loan approvals and a 61% increase in settlements.
And as mentioned earlier, we continue to rank highly in key trust and reputation indices. Roy Morgan rates us as one of Australia's top 20 most trusted brands across all industries. Our home loan customers saw ongoing high Change Action Plan in June 2020, we have reduced our greenhouse emissions by 59%, our absolute emissions by 21% and achieved carbon neutrality in June 2021. We've become a signatory to the task force on climate related financial disclosures, and next month we'll release our 1st standalone sustainability report. We are well known across Australia for our commitment to community.
In FY 2021, we further built on this and returned approximately $20,000,000 to communities through our community bank network, which brought our total contribution since the inception of the model to around $270,000,000 We supported 274 4. It raised more than $15,800,000 in donations over the past year, to an employee engagement score of 73%. In the past year, 63% of people promoted into management roles 4 Women, reflecting the success of the investments made in our Women in Leadership and Lead Bend programs. Rating model. We also made strong progress against our access and inclusion plan, launched our 1st gender affirmation policy and toolkit, And we're globally recognized as an organization that is diverse, inclusive and supports women in the workforce when we're endorsed as a WORK180 20 20 1.
We pride ourselves on our commitment to conduct business respectfully and ethically within community expectations. Good corporate governance, we offer investors in our banks long term sustainable returns and a bank they can continue So before I hand over to Travis to talk further about the results, I want 4. For those that aren't familiar with Ferrosia, Ferrosia is a FinTech company based out of Melbourne. For the past 9 years, we have And in 2018, we collaborated to launch UP, Australia's 1st and largest mobile only digital bank platform and Australia's highest rating banking app. Yesterday, 15th August 2021, Bendigo and Adelaide Bank $116,000,000 The consideration will be paid in shares with a portion of the consideration contingent on future performance.
The transaction is subject to conditions precedent and is expected to be completed by the second FY 2022. The transaction will result in the bank's FY 2022 Given the long term relationship and deep integration, this transaction will require minimal integration effort, providing the bank opportunity successful partnership between Ferrosha and Bendigo and Adelaide Bank, uniting our collective innovation, heritage and matched capabilities to for a new generation of customers with a fresh approach. When we launched up in 2018, we set it out to disrupt Industry by building a completely different experience through a technology led banking, not bank led technology approach. Bank partnership, which continues to be reflected in numerous awards. With the highest rated bank 4th year.
Unparalleled customer engagement and a vision to be Australia's number 1 consumer lifestyle brand, the time is right to engaged customer base. The acquisition unites our strong customer, community and innovation heritage with Ferocious market leading digital capability to deliver all Australians' world leading digital banking experiences. Through our partnership, is unparalleled when compared to global peers. It has welcomed more than 400,000 customers $840,000,000 in deposits in less than 3 years, empowered a new generation of savers, and it will secure our market leading position with this emerging influential demographic. UP is winning young customers from the big four at 100 times per month and 40% log into the app more than 50 times.
As we further accelerate UP's rapid pace of innovation and growth and further expand revenue opportunities through UP, customers and brands will also benefit from Roche's digital innovation and experience. Powered by technology led customer experience design and Run by an internationally experienced team, the acquisition brings outstanding digital and technical expertise to the bank, internalizing Roche's market leading digital capability and consolidating ownership of UP was already supported by the bank's core tick tock. More than 30% of active customers are saving for a home loan with up schedule to introduce home loans to its product suite early in 2022. The acquisition will also strengthen the delivery and bring efficiencies Officer, Travis Krausch, to take you through the financials in more detail.
Thank you, Mani, and good morning, everybody. Full year. Our strategy to reduce complexity, investing capability and tell our story is delivering stronger financial performance. Full year cash earnings $457,200,000 were up 51.5 percent, with statutory net profit up 171.8 percent to 524 4. Cash EPS was $0.856 and return on tangible equity was at 10.17.
Strong net interest percent. Other income was lower with stronger fee income offset by lower trading book, FX and Operating expenses, including accelerated growth and transformation spend, were up just 0.6% on last year. We will continue to retain flexibility around our accelerated transformation program, so we can further simplify our business and continue to support Growth Strategy. Total credit expense of $18,000,000 included the writeback of the $19,500,000 provision announced on the 5th August and is reflected in our strong credit risk profile. Excluding this provision release, total credit expenses represent 5 basis points of gross loans.
Total lending was up 10.6 and the investment made in our retail and third party businesses. As Mani mentioned, this residential lending growth achieved means applications across our retail and third party networks. Total business lending for the year Strong growth in core markets and seasonal drawdowns due to favorable conditions right across the country. Business lending by our customers. We benefited from government stimulus and the unwinding of working capital needs.
Within the business portfolio, our SME 14.8% growth in residential lending can be seen in the significantly stronger year on year settlement activity across both retail and third 4th party. This lending growth was delivered in our core segments of owner occupied and principal and interest lending. Over 70% 4th. This is an industry wide trend with many customers seeking to take advantage of record low interest rates. The improvement we saw in the first in the retail channel continued into the second half, and we're able to maintain the strong level of settlements in our 3rd party business.
The investments made in our retail Mobile Relationship Managers in the simplified retail home loan product launched at the start of the financial year and our 3rd party for the year after revenue payments was 1.94%, down 2 basis points over the year and 5 basis points lower over the half. Net full year 2020. The front book, back book pressure on NIM increased as competitive new business rates for both variable and fixed lending continued across the industry. There was a positive impact from the variable lending rates following the repricing decision made after the RBA cash rate change in November last year. The significant growth in fixed lending from 32 percent to making up over 40% of our residential lending book combined with the increase in the balance of liquid assets, particularly as the term funding facility was drawn down 4th end of the half, meant there was an 8 basis point drag on NIM in this half.
Providing some offset was a benefit from a reduction in funding costs through a mix of deposits with higher Atkore balances, lowering of term deposit rates and the drawdown of the term funding facility. Partners. However, a bigger factor was the growth in proportion of average earning of average interest earning assets Instead, what I can say is we are expecting ongoing headwinds from front book, back book pressure as the low rate competitive market conditions continue, as well as from the higher tailwinds in the first half. Total income on a cash basis was 4.5% higher than the 4th year. Net interest income was up over 6% from 12 months ago, with the above system lending growth driving this Activity was impacted by the RBA's actions, including the lower cash rate, yield curve control and quantitative easing.
Total fee income was stronger with increased lending fees through the high residential mortgage growth and revenue from agribusinesses, government services business. However, transaction full year operating expense result. The outcome shows our resolute focus on achieving sustainable cost reductions and improved productivity across the business. Operating full year 2020.4 million dollars driven by an increased investment in transformation. With the above system lending growth continuing to drive revenue In the second half, the decision was made to further accelerate the investment in technology and transformation, meaning total operating expenses were 0.6% automation program, including a focus on productivity and organizational design, we're able to reduce FTE by 6.1% over the 12 months.
With most this reduction delivered towards the end of the first half, it resulted in operating expense savings in the second half. The reduction in other operating expenses also reflects the progress made to lowering our cost base. Within the 12 months, we achieved reductions through our review of third party and supplier payments, and that will carry forward into future 4 years as well as making permanent changes to discretionary spend levels. During the year, transformation
4.
4. This investment will also continue to deliver effective cost management initiatives, productivity improvements and customer experience enhancements as we add features to our digital channels to enable our customers to do more. Looking forward to FY 'twenty full year 2020. And digital initiatives to take full advantage of the benefits this will provide in future periods. Albeit, we are talking an increase in the order of $10,000,000 to $20,000,000 in total investment, not the year on year change we saw this year.
Turning now to the first of our customer division results. Full year. The consumer division's cash earnings contribution was up 9%, delivered through significant growth in residential mortgages from both retail and third 4th party. As already called out, our consumer division has now outperformed mortgage system growth for 3 consecutive years, proving that our strategy is delivering fees and the impacts of COVID-nineteen seen in customer behavior driving lower fee revenue. This was partially offset by full year.
Total operating expenses were down 12 months down against 12 months ago, reflecting benefits of the transformation program in the corporate branch network and other cost management initiatives. Credit expenses were low at only $8,300,000 for the year. However, release of non COVID-nineteen collective provisions in the second half of twenty twenty meant credit The cash earnings contributions from both 4th. Business and agri divisions increased significantly on the previous financial year. For business, this earnings contribution was up almost 30% through higher net interest over the second half.
The reduction in other income was impacted by COVID-nineteen in areas such as reduced full year. Operating expenses were lower, driven by a reduction in FTE as the business transitions to a new operating Business. Credit expenses for the year were almost half what they were 12 months ago, benefiting from lower levels of arrears across all areas of business lending portfolios and the exit of a number of longer standing non accrual facilities, which has reduced our aggregate impaired portfolio to levels below historic averages. For agribusiness, the earnings contribution was up over percent through higher income and lower operating expenses. The asset portfolio increased by over 14% for the second half due to strong seasonal growth.
However, most of the growth was achieved in June, meaning it provided minimal benefit on NII in the last half, but this will be seen in the NII result for the first half of FY 'twenty two. We did see lower loan limit utilization than 12 months ago, reflecting the strong balance sheet of full year. Other income is again higher this year due to revenue from the government services business. Active management of and structural simplification meant operating expenses were lower even after additional investment made to support the growth in government services Revenue. Credit expenses were only $1,700,000 for the half and only $7,500,000 for the 12 months, This reflects improved seasonal conditions, rising farmland values, strong commodity prices, customer debt deleveraging and disciplined credit underwriting by our experienced and specialized agribusiness team.
HomeSafe's contribution on a cash earnings basis for both the year and the second half were higher, contributing another $18,000,000 in net earnings before tax over the last 12 months. On Property Growth. The outlook is in line with the assumptions on house prices used in our collective provision assessment, taking into full year. We continue to review these assumptions every 6 months, and a key test is how the carrying value of the completed contracts compares to sale proceeds. The proceeds we received on completed contracts during the financial year exceeded their carrying value by 5.2 percent.
Total credit expenses for the year were $18,000,000 including the collective provision writeback of $19,400,000 announced on the 5th August. Excluding this provision release, total year. The improvement in credit performance is a continuation in the trend we've delivered over the last few years. The key drivers of FY 'twenty one bad debts includes lower levels of arrears, a 13.2% reduction in impaired assets from June 2020 and improving economic conditions over much of the financial The dollar amount of impaired assets is the lowest it has been for a number of years, with total impaired loans full year 2018. The provision coverage ratio June 'twenty one was 213.5 percent, up from 201% 6 months ago and driven by the reduction in impaired assets and additional 4 years and consider these factors in the ongoing review of provision levels.
Moving now to arrears. Full Year. Across our residential credit card business and agribusiness portfolios, arrears are down from June 2020 and compare favorably to recent periods. In our Consumer Portfolios, a reason our credit card portfolio increased in the Q1 as collection and recovery activities on cards were temporarily full year. However, you can see from October, when this was reinstated, arrears levels have reduced.
For our personal loan portfolio, The increase shown in the graph on the bottom left is largely driven by the portfolio contraction, with write offs in FY 'twenty one, the lowest in 5 years. The increase in arrears for our agribusiness portfolio since December 'twenty is largely seasonal and driven by the timing of Annual Review of Facilities, noting that the current conditions and outlook for agriculture remains positive. Overall, arrears remain 4. But we do expect a modest increase over the next period given the current uncertainty and lockdowns. The extent of any increase commercial customers.
As of 31 July 2021, we had only 274 accounts, totaling 87 floor. 71% of these customers are in New South Wales and 20% are in Victoria. As Mahdi mentioned before, whilst we've only seen a modest number of Customer Relationship. Total customer deposit balances increased by over $7,000,000,000 over the year, with our core deposits portfolio. However, we maintained a retention rate just under 90% for our retail customers.
Total 4.5. In the last 6 months, we successfully completed a $1,000,000,000 securitization transaction in April and in June, a 225,000,000 5 year senior unsecured transaction at 65 basis points over 3 month BBSW. Over May June, full year. We accessed the remaining $2,900,000,000 of our total entitlement of $4,700,000,000 of the term funding facility. We will see the full impact of the TFF on demand from wholesale markets.
Our common equity Tier 1 ratio increased to 9.57%, up 32 basis points in 12 months ago and up 21 basis points from December 2020. Total capital of 13.81 on June 2020. This increase in our capital position was achieved along with an almost 6% increase in risk weighted assets over the year. This consistently strong capital position reflects a well managed balance sheet and strong risk management. Mani has spoken about the Board decision on dividends with the declaration of a fully franked final dividend of $0.265 with a DRP discount of 1.5 percent.
Full year dividends of $0.50 are 4.5 percent higher than FY 'twenty, dollars 0.45 higher FY 'twenty. The full year payout ratio of 58.4 percent on a cash earnings basis reflects the appropriate balance Board took with their decision. The Board's dividend decision today supports our strong capital position, our business outlook, including expectation of continued System Lending Growth that takes into account APRA's previous industry guidance on capital management, whilst balancing our commitment to support our shareholders with will continue to take advantage of strong customer demand across our consumer, business and agribusiness divisions. As we advance our transformation strategy, we expect above system lending growth to continue, driven by our consumer division and further advances in the small Business and Agribusiness Sectors. While there are multiple moving parts with the net interest margin outcome for FY 'twenty 2, As I said earlier, we are expecting headwinds from front book lending rate competition as well as some higher liquids and fixed rate lending.
With custom at core deposit flows continuing and the full impact of the term funding facility and ongoing active management term deposit pricing, funding costs should provide some tailwinds. We expect a continued reduction in our cost to income ratio for FY 'twenty two. This includes cash flow operating expenditure 4. The high cost base in FY 'twenty two and ongoing investment in growth and transformation means we are building what's needed to achieve our medium term money for some closing comments before we open up to Q and A.
Thanks, Trev. The last year continued to be challenging, further testing the resilience of all Australians. Pleasingly, the depth of the economic contraction However, the recent lockdowns have hampered activity, impacted both business pandemic induced lockdown, a slower than initially anticipated vaccine rollout and take up, international trade sentiment and the continuing effects of Financial Disasters and Climate Change. At the same time, we are encouraged by measures introduced by state and federal governments to aid 4th Australia's Economic Recovery. The results we have announced today clearly demonstrate our strategy is making us a bigger, better performance across all customer divisions and growing our customer numbers and market share in both lending and deposits.
We delivered sustainable Whilst maintaining a resolute focus on costs, improving our productivity and preserving a strong and resilient balance sheet. Our greatest opportunity to expand our market share lies in and New Digital Investments. We have a proven history in delivering innovative banking first in Australia, and this provides us with an Foundation upon which to build further investment in new capabilities, partnerships, technology and 4th. This foundation is illustrated by our partnership with Tyro, our investment in TikTok
full reminder. Our first question today comes from the line of Andrew Lyons from Goldman Sachs. Please ask your question.
Thanks and good morning. Just two questions, if I could. The first just on the transformation agenda. When you first announced The transformation agenda, you expected spend to peak at about $80,000,000 per annum in FY3, which would have been next year. Now you've obviously accelerated I haven't gone through that number in FY 'twenty one, but I'd just be keen to maybe get a bit of an update full year.
On how
you see
that transformation spend, what the trajectory looks like over the course of The next couple of years, there was always an expectation that, that would peak at around that $80,000,000 and then start to fall back towards 0. I'm just keen to sort of understand What that looks like today given the acceleration of that spend? And then just a second question just around I'm just wondering if you can confirm whether they still are relevant. Thanks.
Yes. Thanks, Andrew. It's Travis here. So your first question around the profile of our transformation spend, I think we spoke 6 months ago. Just some of that was coming through.
We expect it to come through in this half. Looking forward, foot. I see 'twenty two, 'twenty three as the peak and then coming back from there. So if anything, since we first started, it's probably pushed out into 'twenty three being that peak now. And I did say as part of my update this morning that we do expect Between $10,000,000 and $20,000,000 in total spend into 'twenty two as part of the transformation program.
Some of that will be OpEx, but that's still within The comments are made around the overall OpEx outcome for 'twenty two. So 'twenty two and 'twenty three is probably where we think the peak with how we see the program at the moment and And then to your second point, yes, the stated capital and dividend payout ratios full
year. And your next question today comes from line of Josh Freeman from Macquarie. Please ask your question.
Hey, guys. Good morning Thanks for having me. Just two questions from myself. The first one is really focused on competition in the mortgage book. So with the end of the TFF drawdowns, how do you guys see competition trending just in the next couple of halves on the front book?
And then the second question, in your slides, you mentioned an opportunity to further build out partner models. And you guys actually note Wise and Afterpay in that. Are you guys able to provide more color on that?
Josh, I might have answered the first one, yes, around competition. Or as far as the impact, Josh, I think, was more around The current environment off the back of the end of the drawdown of the TFF. I think it depends on what the market does. So obviously, Can't make comments on behalf of the whole market, but obviously that funding, the TFF there was to We improved the cost of funding for banks, and then obviously that then impacted lending rates for our customers. So I think moving forward, Full Year.
It's hard to say. It's continued to be competitive, and I guess we just have to watch and see. But when we think about our Moving forward, we're certainly continuing to assume a competitive lending environment, albeit the TFF is fully drawn. Maarten, I might hand to you for the second part of the question.
Yes, no worries. And Josh, I mean, Everyone knows we've got a long history of partnering ourselves as an organization. And so had Ferrosha And there's been a lot of partnering done in relation more specifically to the UP platform. The partners that you talked about there, which was now called Wise, they were TransferWise, now called Wise and Afterpay, are We're partners that are partnered with us in relation to the UP platform. There are other partners as Well, we partnered with Sia.
We will provide a little more color to the to our strategy and what that looks like. I think probably following completion of The transaction, which, like I said earlier, is probably looking around about the Q2 of FY 22. We'll come back to the market with a bit more of a bit more detailed briefing once that transaction is completed. But Suffice to say, both parties, both Ferrosha and ourselves, have a history in partnering and looking to partner with others who perhaps have the skills or capabilities that in marrying them with our own provides for a really good customer experience, and you'll More of that as we move forward.
Thanks, Marni and Travis. Just on that Afterpay partnership comment you Has there been any change in your ability to partner with them with respect to sort of Westpac's agreement with
them? No. So in relation it is in relation to the UP platform, the partnership is, and no, that transaction has not impacted that
Fuehring from CLSA. Please ask your question.
Hi. Thanks for taking my questions today. 4. Firstly, can you just run through the impact of Tyro in 'twenty two, both on the non interest income and then the costs? And is that included in the cost guidance?
Jules.
Thanks, Ed. So the 2 questions. The previously announced Furo partnership is factored into all the numbers we've been talking about today, both OpEx outcome And CTI outcome. If I split the line items though, I think we are expecting in the order of, I think slightly above $10,000,000 to $15,000,000 reduction in other income and then a similar level of reduction around about $10,000,000 in operating costs in FY 'twenty two. What that does though, it also 40.
And to your second question, so even though we're not giving quantitative guidance on NIM. We are calling out those pressures. But in answer to your question, yes, we do think we can grow revenue
Thank you. And any chance for positive jaws considering the Loss headwinds?
We do see an improvement in CGI over the year.
Okay, perfect. Thank you.
And your next question today comes from the line of Matthew Wilson from E&P. Please go ahead.
Good morning, team. Matt Wilson, E&P. Could you provide us an update with the respect to the strategic options you have available to the HomeSafe stake and also how you think about the carrying value of TikTok And what its strategic optionality is going forward given their likely IPO next year. Thank you.
Do you want
me to take the first one, man?
Yes. Thanks, Trevor.
Yes. So Matt, as we've said before, we think HomeSafe is a great product for our customers. It's probably natural asset on the balance sheet. No further update from what we said 6 months ago, apart from the fact we continue to review options there. Obviously, with the low rate environment, strong property prices, it's a good time just to be reviewing all of these assets.
So No real update on what we said before. Okay. And
just in relation to TikTok, It's a great business. It's a great business that's growing really strongly. We've got a 28.6% investment in that business, and we We'll continue to retain an investment in that business.
Great. So I mentioned there's an unrealized gain that's quite material that's potentially sitting in that investment.
Well, we think Sorry, Trent? No, I was going to say, yes, it's certainly not accounted for that way. So, Matt, you've obviously got a view on the value there. But to Mani's point, this is certainly a strategic investment and what we full
year. And your next question full day comes online of Brett Lemassieux from Velocity Trade. Please go ahead.
Thanks very much. You said you expected to achieve above system loan growth. What do you think system loan growth is likely to be next year?
Yes, Brett. Based on all the work out there and our work, we're thinking resi mortgage growth is somewhere north of 5%, We have total lending just under that.
How important is it to restrict your growth 2 deposits going forward given that that is more that's the cheapest source of funding than wholesale funding when the TFF runs As you said, the RMBS was 65 points, yet the average cost of your deposits is below 50 full
year. We certainly don't see any issues with our ability to attract customer deposits is the strength of our business, the strength of our community bank business as well. So We certainly don't look forward and thinking about having to limit lending growth. We've certainly got access to customer funding and wholesale star funding, if needed.
Thanks for all the questions I have.
And your next question today comes from the line of Andrew Triggs from JPMorgan. Please go ahead.
Thanks and good morning everyone. So a couple So firstly, on the mortgage side, the front to back book pricing impact is getting worse every half and that's not even including The fixed rate impact from the strong growth in fixed rate loans, which I presume is the full year. I mean, what comfort can you give us that you think you're getting The gross margin balance right, especially in fixed rates, noting that you did, I think, 57% in both channels on fixed rates during the second half I think it was 44%. That's the first question.
Yes. So Andrew, obviously, the front book, back book The impact on margin through fixed lending reflects the price that's in the market, and fixed lending rates are cheaper from perspective. So that does impact it there. But when I think when we look at marginal returns On both our fixed and variable, we are very comfortable with where we're pricing. And if anything, I think in more recent months, we're probably starting to see that front book, back book or the difference between those two rates being not as stream as it has been in the past.
Now that's a hard one to pick moving forward. But if anything, we're starting to see that temper a little bit. So but importantly, where we price our fixed lending, looks at our appropriate marginal returns we're comfortable with, but obviously also takes into account the competitive
position. Thanks, Travis. Second question, just on the provision side of things. You released relatively little of the COVID You took initially, certainly compared to competitors. Given the strong skew in your book towards both home loans and agri where conditions are very strong and house prices holding up very well, in fact growing very strongly.
Where is your sort of degree of caution that You're taking in terms of that provision setting.
Yes. Look, I think and maybe, Tassos, if you want to jump in after this But I think, Andrew, you're right. The profile of our book is certainly strong, and we're really comfortable with that. I think we did say 6 months ago back in Feb, we saw more the end of this calendar year is 4. The time when we thought there'd be more certainty.
Since then, we've had additional lockdowns and obviously the significant lockdown we're seeing through New South Wales So it is continues to be a conservative watching brief, but really comfortable with the profile of our book. But Tassos, did you want No. Trevor, I think you've covered the key points there. Andrew, the current uncertainty, particularly with the Delta variant,
And your next question today comes from the line of Richard Wills from Morgan Stanley. Please go ahead.
Good morning. A couple of questions, please. Firstly, on Slide 2019. You show an 8 basis point margin impact from asset mix and liquids. It's obviously a lot
Thanks, Richard. It's Travis here. I'll take that one. So if I look at the 8 points we called out in second half 'twenty one for the asset mix and treasury liquids, full year mix and then half to do with the increase in liquids. As I said on my part of the call before, it is really hard to provide meaningful guidance in full year.
If I think about the thematics though of what we're seeing, obviously, we're industry is carrying high ESA balance in particularly off the back of the TFF drawdown that will be used to fund asset growth. So we expect the liquids balance over time to reduce back. But we continue to see that strong growth in fixed lending as well. You combine those two things. And as I said, it's hard to provide numbers into the first half or into FY 'twenty two, But that's how I'm thinking about those two factors.
Okay. And my second question relates to the loan growth. Slide 'eighteen, I think it is, shows the difference between your proprietary and third party settlements. How much of the 3rd party settlements are
I need to find the numbers for those ones. Richard, I'm not sure if I can put my hand on that one at the moment. But I think if I think about the key channels within the what we call within the 3rd party business. It's probably Just over a third, I think, through our broker channel, and then over a third through the what we call our strategic partners, which actually talks 4th. I think we have actually got a slide further on in the packet.
I'm just trying to find which calls out the TikTok flows in there as well. I think it's down to Slide 40. There's further detail on both portfolio balance and settlements through
So of the 3rd party settlements, a third are broker and a third are strategic partners. Is that what you're saying?
It's actually it's Yes, I think it's actually slightly over onethree through the broker channel, particularly given the strong improvement. And that's an industry thing as well, our customers through the network there. But like I said, TikTok fits in strategic partners, Different to the breakaway.
So Slide 18 has about $5,000,000,000 of settlements per half through third party. You're saying a third of those come through strategic partners. So 1.5
to 2. Slightly under
And on Page 40, Richard, for the year, not the half, but the full year, dollars 21,000,000,000 in settlements
question today comes from the line of Brian Johnson from Jefferies. Please go ahead.
I have two questions. Thank you very much. Travis, just the first one, the Can you just run us through what this will do to the balance sheet? I'm particularly interested in whether you're just putting on yet more intangibles. Can you just run us through what it does to the net book value and net tangible book value per share?
Yes. So Brian, thanks So obviously, we haven't we've only announced the transaction today. We haven't completed the final We will provide further details once we've actually got through the acquisition accounting for it though.
Okay. The second question, if I may, for Mani. Marni, having sat through many, many bank presentations, everyone always loves to talk how wonderfully they're doing. I'm just interested to find out, is there ever any discussion at the Board about basically the performance perhaps in a slightly less flattering light? For example, The share price peaked in November 2017 at $17.10 When I have a look at the return on tangible equity Sorry, the return on equity in this result, it's around 7% despite the fact that we've got an incredibly low loan loss charge.
Suppose what I'm really interested in is money, is this good enough and is it discussed at the Board and when can we start to see reasonably earning your cost of capital on the book value?
Yes. Well, Brian, as you know, I'm not going to go into the discussions that occur within the Board. They are confidential discussions for the Board except to say that I feel the appropriate pressure Not only from the Board, but from shareholders and all our stakeholders. We're in a very different environment today than what we were a number of years ago. And I'd say that The whole industry.
It is a very, very different environment. So yes, Brian, That's a fair question to ask. And hopefully, as you see, you are seeing the incremental Into the business, and that's what we will continue to be pushing and driving ahead with.
But Mani, I mean, we're sitting here today seeing a share price down about 8.2% now. You've announced that you're issuing more shares, Costs are going up and the ROE doesn't look that flash anyway. I mean, surely there's got to be a little bit more detail forthcoming about is this good enough?
I think that will be up to the market to make that decision as to whether it actually is good enough. I wish I had a magic wand that could impact on our share price, but that's the market that will make those decisions. Yes, our costs are going up, Brian, but they're going up in a sense of they are supporting growth and transformation. Our income is also going up. We've given an we have been doing has been to ensure that we actually do get to that position in a sustainable way, not just by making We are doing this in a sustainable way so that it bodes for
full year. And your next question today comes from the line of Victor German from Macquarie. Please ask your question.
Thank you very much and good morning. I was actually just hoping to follow-up on the previous question That Richard asked as well around the impact of treasuries. When we look at your Slide 19, I mean, would it be fair, Travis, to assume that that's actually driven by the fact that you drew down on CFF And liquids obviously have gone up and actual impact on revenue is actually not that material from that move. And as you deploy that liquidity, that
on spot margin as we got through those couple of months. As I said to Richard, those funds will be used to fund lending growth,
4. Now that's helpful. And excluding I mean can you maybe just give us an idea what impact has It sort of looks like kind of at the chart, it's probably something in the order of 2, 3 basis points.
Look, we talk In halves there, Victor. We have called out the impact for the half. But you can see on the chart, that would have been the main material movement As far as what we saw through May or through June from a margin result, we do publish that monthly in there for you.
Thank you.
Presenters for closing remarks.
Thank you. And I Between the execution of the strategy and the results that you're seeing, we are growing very strongly. We We're increasing our income, and we're managing our costs accordingly, while still continuing to invest in the areas that we need to ensure We are maintaining the customer experience that's expected, I think, the financial organizations going forward. So Thank you, everyone, for taking the time out for the call today and for your support.
Thank 4Q. That does conclude today's conference call. We thank you all for your participation. You may now disconnect.