Thank you for standing by, and welcome to the Liberty Financial Group full year 2024 results. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now hand the conference over to Mr. James Boyle, CEO. Please go ahead.
Thank you. Well, good morning. Good morning, welcome, and thank you for joining our Liberty Financial Group FY 2024 full year results briefing. We'd like to start this morning by acknowledging the traditional owners of the lands we meet on. Peter and I are presenting from the lands of the Wurundjeri people of the Kulin Nation, and we pay respects to elders, past and present. We also acknowledge traditional owners' ongoing connection to lands, waters, and community. This morning, in terms of agenda, we plan to cover the FY 2024 results in a number of sections. We'll start with an overview of the year's results at a high level and draw out the significant trends and observations. That should allow us to quickly move to Peter, who will then take us through a detailed analysis of our results.
Then I'll come back to provide some further commentary on our business over the period, and we'll close out with a reflection on the outlook ahead, and with time to take questions. In terms of the full year result overview, the full financial year of FY 2024 proved to be a challenging environment for trading, which is reflected in our results. In particular, we had significant competitive tension, supported by ongoing activities from banks, with a return of non-bank confidence reflected in our net interest margin. In saying this much of the reduction was felt in the first half of FY 2024, with a more stable performance in the second half. We were very happy, despite these challenges, despite these challenging conditions, to continue to grow our portfolio, particularly through ongoing targeted diversification.
As a result of that ongoing momentum and careful growth, we also had our investment grade rating upgraded to BB B while delivering a return on equity of 11%. As indicated at the half, the ongoing challenge in cost of living and higher interest rates continued to weigh on our customers, which saw our bad and doubtful debt provisions increase towards more normalized levels. We were once again recognized by both our customers and brokers for our focus on service with our Net Promoter Scores for both cohorts. Finally, we continued our investment in digital delivery, notably launching our customer app in both the Apple and Android stores over the period.
In terms of our financial highlights, those outcomes resulted in an underlying net profit after tax and amortization of AUD 132 million, down from AUD 187 million in FY 2023. Our net revenue was AUD 583 million, which is only slightly down from AUD 590 million in FY 2023, reflecting both our portfolio growth and net interest margin compression. Net interest margin was 2.51% for the period, down from 2.76% in the prior year. As mentioned, our bad and doubtful debts were up at 25 basis points from the previous lows of 13 basis points, which starts to reflect the new normal of higher interest rates and costs of living.
Our cost to income ratio was slightly up to 28% from 26.9% in FY 2023, and we affirmed our distribution for the full year at AUD 0.25 in June, down from AUD 0.44 in FY 2023. Turning to our operating highlights, we were delighted to be able to once again deliver portfolio growth to largely offset the net interest margin compression. We had average assets for FY 2024. Sorry, of AUD 14.1 billion, up 7% from AUD 13.2 billion in FY 2023. We also set an all-time origination record, settling AUD 5.7 billion for the year, which is up from AUD 5.4 billion the year before.
As mentioned, our impaired loans reflect the change in the economic circumstances of our customers, up to AUD 309 million from AUD 198 million previous year. We were particularly proud to be able to continue to deliver our strategy of diversification while holding headcount flat at 535 people. We were even happier that this did not impact our service proposition to customers and brokers, as reflected by our unchanged broker Net P romoter Score of 82 and customer Net Promoter Score of 60. I'll now hand to Peter to provide further analysis of our FY 2024 results.
Thanks, James. The Liberty Financial Group achieved statutory net profit after tax and amortization or NPATA of AUD 127 million in FY 2024. After adjusting for the non-recurring impact from the sale of Mike Pero Real Estate, or MPRE, underlying NPATA was AUD 102 million in FY 2024. The impact on performance from the sale of MPRE was outlined in the half year results presentation earlier this year. The reduction in underlying NPATA between FY 2024 and FY 2023 was anticipated and results from, firstly, a reduction in net interest margin of 25 basis points to 2.51%. The reduction in NIM was projected in our first half results, given first half NIM was 2.54%.
Secondly, an eight basis points increase in specific loan impairment provisions, reflecting an increase in customer hardship as a small group of customers continue to battle with the challenge of absorbing higher loan repayment obligations and higher cost of living. Thirdly, a three basis point increase in collective loan impairment provision, reflecting portfolio growth in the secured and financial services segments. Fourthly, higher commission expenses, consistent with an increase in new loan originations. And lastly, from a modest 3% increase in operating expenses. Underlying NPATA for the second half was AUD 62 million. The AUD 7 million reduction in underlying NPATA, compared to the first half, results from lower NIM, higher impairment provisions, and higher commissions, offset by lower operating expenses.
Total revenue was AUD 732 million in the second half, an increase of 15% compared to the prior corresponding period, and 3% compared to the first half. The increase in total revenue was driven by both an increase in asset yield as a result of one RBA rate increase being passed on to customers, and an increase in average financial assets. Net revenue, representing total revenue less interest expense, was AUD 291 million in the half, an increase of 1% compared to the prior corresponding period, and a decrease of 1% compared to the first half. Net interest margin was 2.47 in the second half, nine basis points lower than the first, due to a four basis point reduction in yield and a five basis point increase in the cost of funds.
I'll talk more about the movements in NIM and the NIM outlook in subsequent slides. Despite this reduction, Liberty's net interest margin continues to be materially higher than everyone in our competitive peer group. Loan impairment expense was thirteen basis points in the half, slightly higher than the prior corresponding period and first half, reflecting an increase in individual provisions from additional customer hardship and reflecting an increased loan portfolio. Cost to income was 27.3% in the second half, lower than both the prior corresponding period and the first half, reflecting a focus on effective cost management. Average financial assets were AUD 14.3 billion in the half, an increase of 7% compared to the year earlier, and an increase of 4% compared to the first half.
New loan originations of AUD 2.8 billion in the half resulted in FY 2024 new originations of AUD 5.7 billion, which is a company record. Growth in total average assets was achieved from the growth in each of our motor, SME, SMSF, and personal loan portfolios. Positively, the speed of loan prepayment and amortization slowed in the second half compared to the prior corresponding period in the first half across all segments. Notably, the reduction in residential loan discharges and amortization resulted in the residential segment achieving portfolio growth in the second half for the first time since second half of 2022. Income yield increased by eleven basis points to 8.66% in the half, mostly from passing on the RBA rate increase in November 2023.
As has been our practice throughout the changing interest rate cycle, we chose to pass on only the RBA rate change to customers. The differential between new origination yield, discharge yield, and portfolio yield resulted in yield compression of nine basis points in the half, a similar level to the first half. As has been the case since we IPO'd in 2020, group yield expanded with a continuing shift in the portfolio mix towards higher yielding assets in the secured and financial services segments. The secured and financial services segments represent 45% of loans at 30 June 2024, up from 43% at 31 December 2023. The expansion in yield from this shift in asset mix was five basis points in the half, slightly lower than prior periods, given the residential portfolio balance has stabilized.
After removing the impact of the RBA rate increase, second half NIM was impacted by an overall yield compression of four basis points. Liberty's total cost of funding is comprised of a benchmark funding margin, which is principally for us, the one-month Bank Bill Swap Rate, and in addition, our funding margin, being the investment return provided to funding and debt capital market partners. The average benchmark funding rate increased by 29 basis points in the half to 4.32%. This increase comprises the RBA OCR change in November 2023, plus four basis points of basis cost as BBSW moves higher during the period in anticipation of a potential rate increase. This increase in basis cost was not passed on to customers. The average funding margin increased by three basis points in the second half to 1.82%.
Medium-term note funding, issued in March 2024, was issued at a higher margin than the funding it replaced, and this additional cost explains the increase in the funding margin. At the present moment, the funding margin outlook is positive. The margin achieved on FY 2024 term funding was 169 basis points, and even lower, 156 basis points on term funding issued in the second half, relevantly lower than the overall second half margin of 182 basis points. Additionally, we are currently in market with a new SME issue, and assuming current market conditions persist, the issue margin should be lower than both the 2023 SME issue and the 2020 issue it is replacing.
The future full period impact of recent term issues at lower margins and renegotiated terms on our wholesale funding facilities demonstrates a positive outlook for the funding margin in FY 2025. The exit NIM was 2.52%, supporting this positive outlook. We successfully issued AUD 3.8 billion in new term funding and increased wholesale limits by AUD 1.8 billion in FY 2024, supporting our new loan originations in FY 2024 and our growth plans for FY 2025. As anticipated and consistent with reporting by other lenders, we provided hardship support to a larger number of customers during the half. Consequently, both early stage and later stage delinquency increased compared to the prior corresponding period and the first half. Positively, since 30 June, both early and later stage delinquency has been stable to trending slightly lower.
However, we recognize some customers remain in a challenging position to catch up with payments and will rely on interest rate relief to remediate their arrears position. From a balance sheet risk perspective, it's important to highlight, the vast majority of loans in the later stage delinquency are supported by property security. The loan impairment expense increased to 13 basis points in the second half, due to firstly, an increase in loans in later stage delinquency requiring a specific provision, and secondly, an increase in the provision for future credit loss resulting from growth in the loan portfolio. The level of absolute realized losses in the half was six basis points, and therefore similar to prior periods and covered by existing provisions. Provisions totaled AUD 98 million or 67 basis points of average financial assets at 30 June 2024.
Total provisions are six times more than the annualized level of realized losses. As such, we remain strongly provisioned, which will provide support to future earnings in the event unexpected customer outcomes arise. The significant majority of loans in the higher risk stage two and three are secured by real property and with healthy equity positions. Accounting standards require credit impairment provisions to be held on balance sheet equal to the estimated credit loss over the lifetime of the loan. That is, balance sheet provisions represent more than the expected loss in the next annual year. The annual movement in provisions therefore reflects movement in the portfolio value, multiplied by approximately three years of potential credit loss. This accounting requirement creates a timing mismatch between revenues and expenses, resulting in a drag on earnings for a growing lender.
The AUD 4 million increase in the collective provision in the half is principally due to providing for the lifetime expected loss to the AUD 380 million increase in the secured loan portfolio. The expected loss in the residential and secured segments at 30 June are largely unchanged from 31 December, reflecting stable customer and portfolio loss attributes, and stable loss performance consistent with expectation. The expected loss in the personal loan portfolio has reduced, evidenced by better than expected observed historical loss performance. The absolute future BDD expense and as a percentage of loans will continue to increase in future periods, both from anticipated loan growth and from the continued shift in the portfolio mix towards assets with higher expected credit loss.
In estimating expected losses at 30 June 2024, 10% of the probability weighting shifted from the downside to baseline, consistent with economists' expectation of a more stable economic outlook. Cash expenses were AUD 79 million in the second half, lower than both the prior corresponding period and the first half. Personnel costs were stable, with wage inflation offset by lower average staff numbers as we begin to realize early productivity gains through process automation. Discretionary expenses were appropriately well managed lower in the second half compared to the first half. The final FY 2024 distribution of AUD 0.13, relating to the seven-month period ending 30 June 2024, will be paid to security holders on 30 August 2024. The total FY 2024 distribution per security of AUD 0.25 represents a payout ratio of 66% of NPAT, within the target range of 40%-80%.
An interim distribution for the five-month period ending 30 November 2024 is expected to be paid to security holders by 15 December 2024. The FY 2025 payout ratio is expected to be similar to FY 2024. We remain a strongly capitalized financial institution and have strengthened the balance sheet over the last six months. As at 30 June 2024, we had AUD 8.7 billion of facility limits, AUD 4.4 billion of which was unutilized and immediately available to support the origination of new receivables. Our funding activity and liquidity position places us in a strong position to continue to help more customers and to grow our business. Liberty Financial Corporation Limited, the principal operating company in the group, had its investment grade rating upgraded to BB B, stable outlook during the period.
The rating upgrade enabled all of our MTN issued bonds to be designated eligible for RBA repo. The repo eligible status will enhance the appeal of our outstanding and future MTNs for both existing and potential investors. Liberty remains the only non-bank in Australia with an investment grade rating. Connecting financial performance and position, LFG generated underlying cash ROE of 11%. This ROE outcome outperforms our competitive peer group after adjusting for leverage. Our leverage ratio, as measured by total assets divided by net assets, was 13.6x at 30 June 2024. This ratio, the lowest in our competitive peer group, along with our investment grade rating, demonstrates Liberty has the strongest balance sheet in the non-bank sector. Overall, we have delivered a result consistent with the current environment and a result that in multiple aspects, distinguishes us from other lenders.
We have delivered portfolio growth in a period of lower credit demand and heightened competition, delivered a continuing shift in the portfolio towards higher margin assets, delivered a market-leading net interest margin, delivered improved operating cost efficiency, which together delivered a leading risk-adjusted return earning profile and the highest ROE to leverage ratio in our competitive peer group. This concludes our remarks on the results, and I may now like to hand it back to James to give a business update.
Thanks, Peter. So as Peter's covered, we think a really strong result given the environment. Turning to our business update, reflecting on how we achieved that, as mentioned earlier, we were really happy to be able to deliver an all-time record in loan originations, which resulted in continued portfolio growth. We saw the start of a recovery in our residential business, with originations continuing to recover whilst discharges improved. We're able to continue our growth in SME and SMSF lending. We also continued to build our new distribution channels in auto lending, where we felt the impacts of intensified competition, particularly with regards to origination yields. Our financial services business continued to benefit from the ongoing growth of our personal loans business, and we also took the decision during the year to stop writing general insurance policies in LFI, given the small scale nature of that opportunity.
Turning to the segment loan originations, our residential originations continued their recovery in the second half, with a return to AUD 3 billion in the total for the year. In our secured business, our FY 2024 originations were 5% higher than FY 2023 at AUD 2.1 billion. However, the reduction in the second half reflects the intense competitive nature of the mobile lending environment and our focus on managing the right price for risk. In financial services, our originations were up 35% from FY 2023 at AUD 535 million, with a slight reduction in the second half, reflecting a more challenging environment for consumers and a lull in consumer confidence. That meant, as a group, we originated an all-time high, AUD 5.7 billion in FY 2024, up from AUD 5.4 billion in FY 2023.
Looking at how that impacted our segment portfolio, our residential portfolio returns to growth for the first time in a number of years by a very narrow margin, which reflects the lower trend in discharge activity as the new higher rate environment becomes normalized. Our secured portfolio continued its growth, increasing from AUD 4.7 billion- AUD 5.6 billion in FY 2024. Our financial services business also continued its growth, increasing from AUD 613 million- AUD 866 million in FY 2024, and that resulted in a group portfolio of AUD 14.6 billion, up 4% from this time a year ago. If we look at our relative value drivers, we feel that we have once again managed the challenges of the environment and competitive pressures fairly well.
Although our net interest margin is lower than it was last year, as Peter mentioned, we finished at 2.51%, which is higher than both banks and any of our non-bank peers. Similarly, our ongoing cost discipline, resulting in a cost to income ratio of 25.2%, is as good as the bigger banks, who benefit from much more scale than we do, while also being significantly better than businesses smaller in size and more comparable to our operating model. Our Tier 1 capital ratio of 15.7%, which supports our investment grade rating, is comparable to banks and significantly differentiated from our non-bank peers.
Combining those realities, we were able to deliver a return on equity of over 11% with a leverage ratio of 13.6, which we think reflects the disciplined way we run the business, balancing longer term opportunity and shorter term challenges. On our environmental, social, and governance agenda, we once again had a strong year of progress and improvement. We were proud to win the Employer of the Year award from Women in Finance. We were also proud to achieve Gold Employer status at the Australian LGBTQIA+ Inclusion Awards. We continued our journey of reconciliation with our Innovate Reconciliation Action Plan, which has been endorsed by Reconciliation Australia. Our gender pay gap of 15% was better than the industry average of 29%, and we acknowledge and recognize we still have more work to do to close this gap.
We began our preparation for Australian sustainability reporting with our carbon audit and efforts to improve our carbon footprint, and we were delighted that our team were once again proud to be part of our community in the significant majority. As we turn to our minds to the coming period, we believe we'll be able to continue to grow our portfolio despite the increasing economic challenges. We've seen, and continue to see, more need for support of our customers facing hardship as a result of these economic challenges. That's also likely to see a continued increase in our bad and doubtful debt provisions, given the nature of our diversified portfolio. However, we do feel that the net interest margin has stabilized over the last half, and that we should be able to continue this trend.
We will continue our investment in automation and digital experiences with a focus on maintaining our industry-leading service and cost discipline. So in summary, we finished FY 2024 a more diverse business than we have been, and with a growing portfolio. That results in leading peer net interest margin, which in turn delivers leading return on assets. We continued our focus on exceptional service and cost to serve, which is reflected in our cost to income ratio and Net Promoter Scores. we maintained our strong liquidity and capital position to support our ongoing growth, and we maintained our focus on delivering the right balance of customer solutions enabled by digital delivery to support ongoing targeted diversification and growth. That brings us to the end of our formal presentation, but we would be very happy to take any questions from the floor.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Tom Strong with Citi.
Good morning, James and Peter, and thanks for taking my questions. First, firstly, just on the delinquency, slide on slide 15, I watched a sharp tick up in the 30 and the 90 days. Could you perhaps break that down in terms of what you're seeing across the segments, in terms of delinquencies? And in the September quarter, I mean, typically you see a seasonal improvement. Have you seen that in the last sort of 6 weeks?
Hi, Tom. Yeah, thanks for the question. I might answer the second one first and throw to Peter for the first part of the question. We have seen the seasonal improvement that we anticipate through the sort of middle of the year after the first quarter, but I would say it hasn't been as pronounced and consistent as previous years, so it's been a little bumpy. The trend is down, but it isn't down as much, and it's been up and down since April. So there's no question in our minds that higher interest rates have become normalized.
Although inflation's improved, the higher cost of living is hurting, consumer confidence is low, and all of those realities are playing out in what we're seeing in terms of our customer's ability to manage through the current environment.
Tom, it's Peter. In terms of the overall segments, at a high level, I'd say a couple of things. The SME portfolio is very stable, so across the periods, both you know early and later stage delinquency, we are not seeing any material increase in delinquency in small business. Nor are we seeing much increase in personal loans. There's only been a very small tick up in early stage delinquency in personal loans. So the majority of the early and later stage delinquency is being observed in the residential segment and the motor segment.
Residential, principally, we feel because the higher loan balances at, on average, AUD 500,000, has resulted, obviously, in a larger absolute increase in the repayment obligation today as compared to when the interest rate cycle changed in May 2022. So it's that, the change in the absolute loan repayment that is being felt, in our residential segment and in the motor segment, we're also starting to see that as well. Mostly, again, for the same reasons, because the majority, of our motor customers are homeowners.
Not necessarily with Liberty, but the majority of our borrowers have a car loan with us, but also residential obligations elsewhere, and so therefore, they are also, those customers are also needing to absorb higher absolute loan repayments. So, they, they're the comments I'd make, Tom, in the context of how loans are performing in the various segments.
Yeah, that is very helpful. Thank you. And just one more question, if I can push my luck. Just interested in the comments around the competitive environment in motor finance and in secured. Just noting that the originations or the growth fell a little bit in the second half. I mean, what are you sort of seeing as to where that competition is coming from, and would you expect it to continue given what the swap rates have done over the last couple of months?
Yeah. Thanks, Tom. We're seeing a non-bank-led competitive environment in motor lending in particular, and I think that's attributable to a general sense of building confidence that we're in a new environment. You know, I think obviously it was very difficult to be a non-bank in a period where interest rates were consistently going up and banks had the benefit of deposit funds. The banks stepped out of motor lending during that same period, leaving it to non-banks, a couple of big private equity-owned businesses that have been very focused on that space, and I would say, I don't know this to be the case, but my assessment would be they're kind of risk on.
They're saying, "Well, we don't think that there's much more, if any, to come in interest rate increases, and so we can, we can be a little bit more aggressive in our risk taking," and that's showing up in their pricing. For us, we feel it's a little premature, and probably not quite getting the risk price right, which is why you've seen a sort of slightly softer half. We choose not to, you know, buy risk at the wrong price if we can avoid it. My view is that we've seen that happen a bit, well, with some consistency from non-banks in auto lending at the moment. But your point about swap rate is a good one.
I mean, I think it will continue to buoy their confidence to be risk on, but at some point, you know, they'll recognize the price of the risk that they're riding, and the thing about these businesses is, when you're growing really quickly, you know, it can hide a lot of sins because your denominator goes up, you know, quickly, and if you don't keep your eye on what's going on with your customers who are struggling to make their repayments, it looks like it's not problematic because, you know, it's hidden by the growth. I think as the dust sort of starts to settle a little bit, that will become more evident to them, and I think, I don't know, it's my view, there'll be a bit of a...
There needs to be a bit of an adjustment, because otherwise, I think in at least one case and perhaps two, they've been riding loss-making business rather than profit-making business, which, you know, doesn't make sense in the long term, but it's easy to get sucked into the allure of fast growth and high growth, especially if you've got a relatively short timeline, as is the case in a lot of private equity-owned businesses.
No, that's very clear. Thanks, guys.
Thanks, Tom.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Jason Shao with Macquarie.
Hi, James. Hi, Peter. Thanks for taking my question. Two from me, if I may. So it sounds like, broader stability of mortgage competition across the banks have sort of supported originations, which is a positive. And from your comments before, it does sound like there's some non-bank-led competition maybe in the mortgage space as well. Just wondering, does that have much of an impact on your volume growth? Or given the market size of non-banks, the impacts from volume growth isn't too significant in the residential space. Thanks.
Yeah. Hi, Jason. Thanks. I think I caught the start of the question. I certainly got the end of it, so I'll give a go at answering both, but you know, let me know if I didn't get it right. The both parts of the question focused on the residential business and in particular, what's going on with banks and then non-banks and how it's been impacting our growth. We have seen more rational behavior from banks in home loan lending over the last half a year than perhaps the year before, and I think that's consistent with the view that we're in a higher interest rate environment for longer. That's become more normalized. A lot of the fixed rate loans that were written during a period of stress in COVID have matured.
By and large, the banks have done a pretty good job at navigating, you know, the much-publicized fixed rate cliff, and all of that means that we're seeing more rational behavior from a pricing perspective, and slightly less pressure on discharges, which is reflected in our portfolio growth, but simultaneously, non-banks certainly that are a little more, a little faster, perhaps, to adjust their strategy more significantly than we are, and who were, you know, all in and all out, are kind of coming back all in again, is the short answer.
With the growing confidence that we are in a different environment, we are definitely seeing some of the non-banks step back in places where they previously perhaps were ducking to cover because there was fear that they'd get caught in the crossfire between banking competition. You know, that's not always rational, and it's not always with experience. By and large, what we find is by being consistent, particularly through a channel that's intermediated significantly by brokers who deal with, you know, tens of lenders through the year, it serves us. You know, although times can be volatile and difficult, brokers tend to get the same answer from us from year to year with some consistency and some rationality, and that tends to shine through.
So while we see some of the other non-banks sort of react one way and then the other and not be able to deliver that same service with consistency, it can hurt us because they tend to then have to lean on the price lever a little heavier than anything else, and that's, you know, that's certainly playing out at the moment, but I think not significantly impacting our residential performance. But per previous comments, I think where we're seeing that play out in a more dramatic way is a market where the banks aren't present, and that's just the non-banks in home lending, but just check in, did I answer the question?
Yep. So if you see a competitor non-bank step up competition, does that show up through your originations much?
It just depends on how they do it. You know, we've seen lots of different things in the last six months. We've seen some lean in very heavily to low doc lending. We've seen some change the commission model. We've seen some leaning heavily under sort of short-term campaign-oriented initiatives around discounting investment loans. Any one of those in the short term might have a little bit of a dent in our momentum. But again, in the long term, what tends to happen is people see through them as being short-term, you know, campaign-oriented moves, and don't tend to take business to them consistently. I think we've probably got better consistency in our engagement.
And when we look at the surveys that are available about the broker market, we continue to be the leading non-bank in terms of engagement. You know, throughout the period, more brokers come to us than go to the other lenders consistently. And what happens is, the number of brokers going to the other non-bank lenders tends to be quite volatile based on these campaigns. So they'll all rush over to get a discount on a investment loan, or then they'll rush back to get, you know, something, some special on a low doc loan. But we tend to get repeat custom, I think.
So I can't say it doesn't impact us, but we're steeled by our strategy, which is consistent delivery based on rational pricing, rather than being sucked into sort of, perhaps slightly more, short-term campaign-oriented strategies.
Great, thanks. Just second question, if I may. If we do see a few rate cuts in FY 2025, how do you view opportunities around mortgage backbook repricing? Is your strategy more to follow what the majors do, or do you see some opportunities to reprice your backbook independently from what they do?
I think we'll be very led by what the majors do. I mean, they, we're not in a position that we set the conversation really, that's done by them. And what we have chosen to do consistently, and perhaps in not keeping with the other non-banks, is do what the majors have done. Which I think by and large has been informed by community good and doing the right thing by customers. You know, we believe, as shown in our ESG numbers, we believe that we've done the same. So, you know, if there's an opportunity there, and the majors pursue it, then we would consider that as well. That said, if they don't, I think it makes it slightly harder for others, so.
Thanks, guys.
Your next question comes from Jeff Cai with Jarden.
Good morning. Good morning, and thank you. Just a question on asset quality. Look, you, you sort of guided to higher loan losses for next year. Just wondering, like, which part of the loan book do you see as the key driver or source of higher bad debts going forward? It kind of seems that your... I mean, your rates are up in mortgages, yet your expected loss has actually come down a little bit, half and half. So just interested in some color there.
Yeah, thanks, Jeff. It'll be a few questions, Peter. I think summarily, all segments will if we are successful at growing each of the loan portfolios in three segments, which of course is our ambition, then the collective provision will need to increase across all segments. But as you can see from the chart, obviously, the lifetime loss in the secured segment is higher, and financial service segment is higher than residential. So it's essentially a mix. It's a mathematical mixed calculation, Jeff.
So we will likely see increased collective provisions necessary a year from now across all three segments, but more weighted toward secured and financial services, because we expect them to grow at a faster rate. That we expect them to contribute a greater absolute level of growth in assets, and in addition to that, they require, because of their nature, higher provisions to be held against them. So, summarily, all three segments, but are weighting towards secured and financial services, is where we expect the additional provisions to be required at the June 2025. Jeff?
Got it. Thank you. And the small number of mortgage customers that's facing hardship, you're pretty comfortable of the collaterals underpinning those loans, presumably?
Yeah, very much. I think there's two elements. The first is that certainly there are more customers than we would prefer, and they would prefer themselves, obviously, being in hardship. But what we're observing at the present time is that the majority of those customers remain employed, and their income continues to flow. It's just that it's insufficient to be able to catch up or pass the risk position. And so as mentioned, it's our view that the rate cycle reduction will be the catalyst to improve that position. So the people that are needing support are still earning income. We're not seeing an increase in people, new people seeking hardship, so that's a positive sign.
And then, as you say, the majority of the customers in hardship are well secured by property, and those property LVRs, as stated in the presentation, range between 50%- 80%. So even if the worst were to occur, and an asset sale was necessary, you know, we're well secured, as does the customer. So the outlook for property values, from a consensus economics perspective, remains positive, perhaps not increasing at the same velocity in the next 12 months as it did the last 12, but nevertheless, all economists I feel are projecting positive asset growth, in which case, that's positive both for customer and for the portfolio as well.
Great. Thank you.
There are no further questions at this time. I'll now hand back to Mr. Boyle for closing remarks.
Well, thank you once again for your interest in our results. We look forward to catching up with many of you over the coming days. Have a terrific Monday. Thank you.
That does conclude our conference for today.