I would now like turn the conference over to your speakers today, Mr. Scott McWilliam and Mr. Jason Azzopardi. Please go ahead, gentlemen. Thank you.
Thanks very much. Good morning, everyone. It's my pleasure to welcome you to Resimac's Results Investor Conference Call for the half year ended 31 December 2020. My name is Scott McWilliam, CEO of Resimac, and with me is Jason Azzopardi, our CFO. We'll be speaking to the investor presentation, which has been lodged with the ASX. In today's presentation, we'll cover off on a few topics: our first half performance, an update on our COVID-19 hardship payment portfolio, as well as strategic priorities, including our core banking IT project. In the interest of time, we will not speak to every slide, but the main performance highlights and the business activities to allow for sufficient time for questions at the end of this presentation.
The call moderator will provide instructions for you to ask questions at the end of the presentation, and we welcome any questions you may have. Can I please ask everyone to turn to slide three. Jason will start with the performance highlights underlying our strong performance compared to first half 2020, our previous corresponding period.
Thank you, Scott. In 1H 2021 , the group generated AUD 50.5 million of profit after tax, an 88% increase compared to first half 2020. This profit increase is underpinned by a 45% increase in net interest income to AUD 122.1 million, driven by a combination of asset under management growth across all products and channels and higher margins across the portfolio. We will expand on our growth in both AUM and margins as we proceed throughout the call. The higher net interest income, combined with our continued cost discipline, resulted in a significantly lower cost to income ratio of 31.1% for the period, a 1,100 basis points decrease. Finally, we are pleased to report an annualized return on equity of 38.7% for the period.
The group also settled AUD 2.14 billion of home loans during the period. While slightly down on the previous corresponding period, we're pleased with settlements remaining strong during the period of extreme economic uncertainty, including lengthy Victorian lockdowns. Home loan assets under management continued its strong growth, growing above system by 14% to AUD 12.9 billion. Our growth is underpinned by our consistent and timely service offering to third party, for the third party channel. We are pleased with our position as leading New Zealand non-bank, where assets under management growth increased 35% annualized during the period and our recently rebranded direct to consumer channel, homeloans.com.au, which ended the half with record settlements only four months after launch.
I'm also pleased to report that the board has declared a fully franked interim dividend of AUD 0.024 per share, a 100% increase on the prior year. Moving on to slide five. I'd like to call out our 13% increase to operating expenses. In line with our previous correspondence in FY 2021, we commenced our transformational core banking IT project. This project is the largest in Resimac's history and will transform the banking experience for customers and the loan origination process, developing a fully digitized platform for customers and for brokers. During the half, we incurred AUD 3.5 million of operating expenses in relation to this project. We have fully expensed all project costs and as and when they occur, rather than capitalizing and expensing into the future.
We expect to incur a further circa AUD 4.5 million of costs in relation to this project in the second half 2021 as the project nears completion. Moving on to slide eight. We have provided detailed analysis of our group net interest margin. Home loan pricing decreased 20 basis points during the period, driven by the full period impact of the 25 basis point customer interest rate cut in March 2020 and the organic yield runoff from the aggressive price competition in the Australian home loan market. Our funding costs, being the margin we pay above BBSW on our RMBS and warehouse facilities, increased seven basis points during the period as pricing on both funding instruments increased during COVID.
Over the last three to four months, we have negotiated material decreases in warehouse pricing and recent market RMBS pricing indicates our impending AUD 1.5 billion RMBS deal will be priced well below our recent issuance. We expect both warehouse and RMBS pricing to provide tailwinds in 2021. Finally, BBSW continued to reset lower during the period, with an average BBSW of eight basis points during the half. BBSW is currently resetting at one basis point, and we expect this to remain the floor.
Thanks, Jason. Moving to slide 10. Our portfolio continues its outstanding performance, with arrears as at December 20 lower than pre-COVID arrears as at December 19. We increased our collective provision by AUD 2.9 million to AUD 33.5 million as at 31 December 20, further strengthening our balance sheet covering for potential future credit losses. Moving to slide 13, we provided an update on our COVID payment deferrals. At a high level, the number of customers on payment deferrals decreased from 3,195 to just 524 as at 31 December 2020. Customers on payment deferrals represent AUD 294 million of loans. The weighted average dynamic LVR of these loans is 71% for prime and 73% for specialist. Only AUD 22 million of loans without LMI have a dynamic LVR of 90% or higher.
Our COVID overlay of AUD 16.4 million remains in place as at 31 December 2020. We will review the appropriateness of this overlay at 30 June 2021. Moving to slide 16. On slide 16, we outline the key focus areas for the next six months. In summary, the opportunity to continue to grow assets under management and market share in our core home loan market is enhanced by the property market rebound and also low interest rates in Australia and New Zealand. Whilst our assets under management now exceed AUD 15 billion, Resimac market share is still less than 1% of market. We remain focused on providing end-to-end solutions for Australian and New Zealand customers, combined with an outstanding service offering. Digitization. The group is undertaking a significant overhaul of its digital and customer experience applications, as well as implementing a new core system.
Our aim is to create simple and easy-to-use technology-based solutions to deliver a seamless digital experience. We are halfway through this project, and we expect to be completed later this year. Resimac Asset Finance. On the 1st of February, as announced, I'm pleased to report again that we moved to 100% ownership of IAF Group, now rebranded Resimac Asset Finance. This channel provides access to a new market, diversifying earnings over the coming years. We view Resimac Asset Finance as a high-growth channel, leveraging Resimac's distribution and funding expertise, we expect this channel to provide AUM and margin growth in the future. That concludes the presentation. I'll now hand back to the moderator to facilitate a ny questions.
Thank you very much, sir. Thank you. Your first question is from the line of Damian Williamson from Bell Potter. Please go ahead. Thank you.
Yeah. Hi. Hi, Scott and Jason. Well done on the result. Can you just give us, there's been a bit of a negative reaction to the share price today, which I can suspect relating to the softer settlements. Can you outline how competitive the market is in terms of settlements and, in particular, the major banks offering all these very low fixed rate mortgage products and how you're seeing that's impacting your settlement pipeline?
Yeah, sure. You're right, it is an extremely competitive environment out there. It is a growing market out there. If you look at the last two quarters of home loan lending commitments, they've grown significantly. It is a tailwind for our business, just like other lenders, leading into calendar year 2021. It is a competitive market. We are writing a sufficient amount of prime loans into that market. The back end of the first half was stronger than the first quarter. That's because there's obviously still a lot of noise in relation to uncertainty in relation to COVID in that first quarter. We're seeing a strong pipeline and strong momentum coming into this calendar year. We expect it to continue to be very competitive, but we are obviously pleased with the volume and the pipeline that we're seeing today.
Okay. Just also another question on turnaround times. I think in the severe lockdowns back in around that April, I think groups like AFG were noting that some of the major banks, in particular ANZ, their turnaround times on mortgages were up around 40 days. Have your turnaround times on mortgage approvals typically remained like 24, 48 hours, that type of range, and does that help with your mortgage loan book growth?
Look, yes, it does. Our turnaround times, despite pickup in volume leading into the end of the first half, our turnaround times today are inside of 48 hours, and on most days, actually inside 24 hours. Our turnaround times moved out mid-year, the heart of COVID, out to four or five days. As you mentioned, Damian, when we're at four or five days, the market was still at 20 days. It is an important part of our service offering. Speed and certainty, for those who've been on these phone calls and listening to Jason and I in the past, is an important part of our value proposition, and we continue to offer it today. I think that really does underpin the pipeline that we're looking at.
Okay. Just as a final question, just on the influence of the RBA and their quantitative easing, you're seeing unprecedented scenario where you've got bank bill nine basis points below RBA cash versus scenario you faced not so long ago, bank bill being 50 basis points above RBA cash. How long do you see bank bill remaining at these levels, like the low, or do you see it going back to 10, 15 basis points above RBA cash at some stage later this year once the Term Funding Facility, say, unwinds, or do you have an expectation on what's going on there?
Just to make sure I answer your question, are you specifically talking to BBSW or talking about credit spread?
Yeah. Just in terms of bank bill swap rate, because that's obviously made a massive tailwind on your net interest margin.
Yeah. Well, I think it's probably best to refer to what the RBA is saying, and it's been pretty consistent in their messaging this month. That is, they're very much focused, obviously, on the labor market, and they're focused on credit being deployed into the market. I think they've made statements all the way up to 2023 that they're looking to hold the cash rate where it is. I think if you have a look at what your major bank analysts are forecasting in relation to BBSW, they're forecasting minimal change to BBSW for the next six to twelve months, and potentially running up to what is the cash rate today, 10 basis points in 2022, 2023. Our outlook and our expectation is for BBSW to remain low.
For BBSW to remain below RBA cash for the rest of this year, potentially into next year.
Correct.
That's what you, y ep. Okay.
Correct.
Thanks for that.
That's what the major banks are highlighting.
Okay.
No worries.
Okay. Thanks, guys. Well done.
Thank you very much. Once again, ladies and gentlemen, Thank you. Your next question is from the line of Tony Mitchell from Ord Minnett. Please go ahead. Thank you.
Thanks. Well done on your result. Just on the home settlements front, do you expect that number to continue to decline because the major banks are getting a bigger part of the market? I know you've only got less than 1%, but I'd be interested in your comments on that.
It's interesting, well, as they continue to decline, I think our settlements trajectory has been from the mid threes to above last year, and this year down slightly on prior comparative period. I think it's important to think about the half we've just come in terms of Victoria in lockdown for most of that half and zero property sales there. It went from a buy and refi market to only a refi market. We don't see settlements continuing to decline as such. We see what we settled as actually quite strong in the period, given what happened with the economic uncertainty. We've also been investing internally in a transformational project where that's taken a lot of our focus as well.
For us, we see settlements at a level now where we want to continue into the second half and grow from there. The market is competitive, but we absolutely see opportunity to grow.
Are you disappointed? You've just come out with an absolutely cracker result. The stock market marks you down. Would you say that's due purely to the settlement thing, or do you see anything else that would lead someone to sell off like this?
Look, we're probably just as surprised as yourself in terms of just the early response this morning. Let's see where the market ends at the end of the day. They're digesting our numbers, especially understanding where we're investing at this stage and into the future. We're surprised. No, I don't think the settlement numbers would be a shock because I think we provided guidance at the end of last year. Where we've landed at 2.1 is probably better than where we actually provided guidance to the market in November. I don't see that as a surprise or it should not be a surprise. To Jason's comment is, we're not sitting here worried about settlements numbers right now when we look at the opportunity going forward.
That's making that comment purely in relation to the market we're playing in today. I'm ignoring new markets that we're entering into.
Right. Okay.
I mean, we continue to focus on what we can control. Increasing the performance of the business as we continue to do, and the market will work itself out. It's been a solid trajectory upwards, and there'll be little bounces, but nothing's changed fundamentally in this business. We are very, very confident on the outlook.
Okay. Can you just outline the money you're spending on the IT? How much is it? Can you just illustrate how much it's going to improve the efficiency of the organization, and obviously comment on digitalization as well.
I'll start just on the financials. We spent AUD 3.5 million in this half, and we've taken the accounting approach to fully expense that, rather than it being a drag on the P&L in the future, mainly because it is cloud-based and we don't have full ownership of it. We decided the appropriate treatment was to write it off. In the second half, we expect to spend about AUD 4.5 million, which will also hit the P&L, so AUD 1 million up on this half. In FY 2022, we would think that would be AUD 1 million-AUD 2 million in total. The benefits is it brings huge efficiencies and scale benefits for us. It's how can we grow that settlements number and keep the cost base flat at a high level from a financials perspective.
Scott might want to talk about the digitalization benefits.
There's a number of benefits to it that internally, it's all about the Jason point at the end. It is all about cost efficiency and scale. How is it that Resimac can settle AUD 4 billion in a half if the opportunity presents itself without materially changing our cost base. Therefore, it required investment in our core systems and we're excited by the functionality that this kind of modern cloud-based technology delivers to the organization. The other piece that's really important is actually just remaining relevant in the market. That is consumers today and their expectations of point-of-sale services companies in terms of their banking functionality is heightened in this market. It's important that we remain relevant. It's important that all of our customers have the kind of features and the functionality they need from a banking perspective.
We also look at the back-end experience and we think, "Okay, well, what is it that we're not offering customers today?" Despite obviously our strong growth over the last three years, where are those pieces? Where are those pain points we're not covering off on? Our digital platform and our digital experience, obviously considering the investment we're making, required further work to make sure that we are in front of that curve in terms of providing a true digital experience to customers. We see that it's a scale piece, it's an internal cost efficiency piece, but it's also a big driver of AUM going forward as well.
Right. Now, when will it be fully finished so you're ready to get the benefits of it?
Look, the end of this calendar year is when we expect to, let's call it, stand up or drop that main environment into the business and obviously for customers to see that benefit as well, as existing customers as well as new customers. I think when you think about technology and digitization, and the fact that a big part of our service offering going forward is you never really finish your digitization journey. What we're calling out is obviously costs that relate to a replacement of our core systems, and we don't expect to be replacing our core systems for the next 10 or 15 years.
Right. Where will the cost-to-income ratio, once the new system is operational fully, where do you expect the cost-to-income ratio to go? It's now 31.1%. Where do you expect that to go?
We'd like it to go as low as possible. At the end of the day, it's a subject of growing income faster than we grow expenses. This one-off expense in 2021 won't be there in 2022. Then we want to, as we talked about, continue to grow the business. How can we settle AUD 5 billion, AUD 6 billion, AUD 7 billion per year and maintain the cost base? Obviously, that brings revenue benefits. What this project also does is enhances our current customers' banking experience. We know that needs improving, and that's going to help us with retention, which also helps with our book growth.
It would be a given to say that the expenses that you're doing for the IT were obviously built in your profit forecast.
The profit forecast in the outlook, the guidance we've given?
Yes.
For FY 2021, correct. That 4.5 is included in that.
Yeah. Okay. Thank you very much. Thanks.
Thank you, sir. Your next question is from the line of Andrew Tan from Bell Potter. Please go ahead. Thank you.
Hi, guys. Thanks for the presentation. It's really well set out. I just had a question. Firstly, to clarify the IT cost of AUD 8 million. That is a one-off. Next year, aside from the one to two million AUD you might spend extra in FY 2022, that is not going to be repeated?
No.
Not that particular project, no.
Right. Yeah.
The AUD 1 million-AUD 2 million will definitely be in, Andrew. In FY 2022. Yeah, that project will complete, and that's a circa AUD 10 million project. That's a one-off project.
Okay. In terms of NIM, I guess in the slide you alluded to warehouse pricing coming down at the end of the half. Can you quantify, I guess that NIM tailwind from reduced warehouse pricing?
Yeah. We've got seven warehouse providers, a mix of offshore and onshore. Some of the pricing's been negotiated, some of the repricing events are still to occur. We have got a tracker rate, we've obviously got a mix between warehouse and RMBS. We're moving AUM out of warehouses into RMBS as we're completing new issuance. I think the best bellwether potentially for you will be, yesterday we mandated our AUD 1.5 billion RMBS deal, which means the pricing for that will be out pretty soon, Andrew. You'll be able to gauge, compare that pricing to the RMBS issuance that we've done, and you can see the differences in the market pricing. I know warehouse is different to RMBS, but it will be a decent bellwether for you.
Yeah. It only flags through to a portion of your book, I guess. The portion that's funded by the warehouse and a portion that's funded by this new issue.
Exactly. It's not that amount total book, but it's obviously a portion of it, we're trying to increase that percentage of all the repricing that we're doing in 2021 to offset the competition in the market for new business, which is obviously driving yields down for everyone in the industry.
Okay. I guess in the second half, you have a BBSW tailwind of seven basis points based on the average in the first half. How do you look at kind of balancing NIM versus volume growth? I guess with some of these NIM tailwinds, it probably can let you be more aggressive to get home settlement growth.
That's right. Yeah. You've got obviously the organic squeeze or runoff from NIM that you have on your book, which has been there forever and a day. It's kind of further amplified in this heavy refinance market as well as obviously competing for new business. You pointed out the two tailwinds, and that is obviously there's still further movement in terms of the average BBSW over the period, as well as a tailwind in terms of credit spreads, relating to new term issuance, but also warehousing. As you also called out, that can take time to move through the entire AUD 13 billion of book.
Okay. Just lastly, of the AUD 2.1 billion settlements done in the first half, can you provide a Q1 versus Q2 split?
Q2 was stronger than Q1. I don't have the exact amount on me, but there may be AUD 100 mil or AUD 150 mil difference.
Okay. All right. Great. Thank you.
Thank you very much. Your next question is from the line of Ray Gin from Australian Ethical Investment. Please go ahead. Thank you.
Morning, Scott. Morning, Jason.
All right.
Getting back to the NIM, with all the moving parts there, is your exit NIM around about what the period NIM was at 2.11%?
Sorry, say that again.
With all the moving parts. Yeah. At the end of the period, was your exit NIM around about 2.11?
Yes. It wasn't far off.
Okay.
It hasn't bounced during the half.
Right. Do you think you're going to be able to maintain that 2.11 through the rest of this half, given all the discussions we've had past?
On the three components, we would expect that BBSW will be a tailwind, given where it's resetting at the moment. It was average of eight basis points in the first half. We probably expect that to be two in the second half, given where its current resets are. We would expect pricing to decrease, with the new business rates in the market at the moment, and pretty much probably in line with that first half, which was about nine basis points. We heard 9 to 10 basis points. Funding costs, we expect an improvement in there for the reasons I just outlined in terms of some of the warehouse repricing that we've done flowing through, and the RMBS issuance.
You've got to remember that, if we do an RMBS issuance in March, it doesn't affect the second half that much. We'll receive that benefit much more into FY 2022.
Right. It sounds like that 2.11 is maintainable unless you compete it all the way.
Yeah. We think we can maintain it. Yeah.
Yeah. Okay.
We think we can maintain. What's happening in the market is clearly yields have been coming under pressure for a while, now funders and the market is coming down the expectation there as well. That's our focus, is ensuring that our credit spreads are reducing in line with what our yields are.
Right. Just moving on to the deferred loan balances, AUD 294 in December. Has that continued to decline up to today?
We've got the 31 January data. It's a slight improvement. Before we gave the December data, there wasn't a lot of difference in that. What we've actually seen is most of the arrangements are six months. During the Victoria one in the second half, we actually had some new people apply, and they were granted 6 months. 6-month periods will start to end in the next couple of months, and we're working with those customers to help them through that. We're feeling quite confident around the performance of it. We didn't release the overlay or any of it because we just want to watch what happens in this half. With obviously the stimulus coming out of the economy, it's a bit of an unknown, but we're all watching.
It just didn't help over Christmas when there's lockdowns, and it does sap confidence. We just want to take the appropriate approach, just to watch this half, monitor it all. Even the customers that have come off deferrals, ensure that they maintain payments for the first six months off the deferral, and then we're in a lot better position to give an update at year-end.
Okay. Some of those deferred customers moved on to a hardship scheme?
Yes. Not many. Not many. Our arrears are performing really, really well. It's performed as well as we could have hoped for in a COVID year. We couldn't have imagined we'd be in the spot we're in now.
Ray, that's the right question to be asking because that's the leading indicator is how many of those customers are actually then moving into what is a more traditional arrears arrangement. As Jason pointed, we're pleased with kind of the small numbers that are moving through into a normal arrears cycle. Therefore, that will be a leading indicator for us when we think about what is the right provisioning for the company going forward. The other piece, obviously, that gives us a lot of comfort is the strong property market. It's a factor of two things, and that is probability of default and underlying asset prices or equity in the property. We're looking at these numbers today, the delinquencies, the data, as well as the underlying assets themselves, and they're both trending in the right direction.
Delinquencies are coming down, obviously, and asset prices are forecast to continue to increase. The outlook is a lot more positive today than what it was six months ago.
Okay. Right. Just finally, you were writing loans obviously way above system. As of sort of today, are you still above system?
We are.
Okay. People shouldn't worry about those settlements then, should they?
I don't think so. There's a lot of activity in the market. It's a good point, though. If we're writing AUD 4 billion in a year, we're still growing our book above system. Would we like to be writing AUD 5 billion in a year? Yeah, absolutely, we would. You get to a point where profitability on a loan is important. If you've got brands in the market, let's call them yellow, red and blue, and they're giving away steak knives for home loans, well, that's a market that's probably a short-term strategy. We're starting to see the end of that now. We're starting to see also a drop-off in interest rate requests from your existing customers. That heat, we believe, is coming out of the market.
As I mentioned earlier in the phone call is, we're pleased with the pipeline we're looking at today and the activity that we're seeing today. Your second half, you guys are better than most, Ray. Your second half from a volume perspective is normally less than your first half because you obviously have that January, February effect every year. What I can say is January and February from an application perspective, was stronger than what we expected.
Oh, good to hear. You never offered cash rebates at any stage, did you?
Absolutely not. We don't. We hold on to our cash, Ray.
Okay. Thank you.
Thank you very much. Your next question is from the line of Rob Serbin, a private investor. Please go ahead.
Good figures, Scotty and Jason. Very well done. The reaction, obviously, in the market this morning was purely really on the settlement figures, and I think you've explained that very well, particularly with the whole COVID situation in Victoria. Losing significant volume from the second biggest market in Australia for a fair period of time is obviously going to affect settlements. The other thing is that, I was anyhow quite surprised by the magnitude of the provision you made in the last six months, and which was, I thought, a very substantial amount. I could understand why you did it. I was a little bit surprised that given the improvement in the book, et cetera, in the impairment scenarios or potential impairment scenarios, that you made another provision of AUD 2.9.
I thought perhaps there might not need to be any more provisioning. If you added back the provisioning you made of this six months to the declared figure, you are actually at the peak end of your projection between 47 and 53 you made two months ago. I think people need to look at these figures in the light of what you're saying, and hopefully the market will and will give due credit to your share price, based on the underlying performance that you blokes have achieved, which I think is a fantastic effort. Well done.
Thank you. Just to touch on that is, it could be deemed conservative. We look at provisioning as a basis point coverage of our assets under management. Whilst we are increasing assets under management well above system, with 14% growth in our home loan assets under management, we, as a matter of course, want to retain a basis point coverage of that assets under management. That's what we try to achieve to protect ourselves against potential future economic loss. The performance in terms of arrears, et cetera, when you combine their arrears and the collective provision, you could say that there's an element of conservatism in there. As I sort of touched on, we did take a large provision at year-end for the unknown.
We haven't released any of that, but we will be looking at that for year-end. If we deem that we are holding too much conservatism, in relation to economic impacts of COVID, because we'll know a lot more by then, we will potentially release some of that.
Yeah. Fair enough. All right. Thank you.
Thanks, Rob.
Thank you, sir. Your next question is from the line of Cyril Jinks from Bell Potter. Please go ahead. Thank you.
You can call me Cyril as well.
Cyril, yeah. Cyril's good.
A new investor to the market. Congratulations on the result. I just want to reemphasize that, having spoken to some fund managers and also investors, there's no doubt that people thought settlements going down was revenue going down. Revenue actually was up 9%. I think there's just a bit of confusion on terminology there. That will wash away. I just wanted to raise the eyes a little bit. Putting aside the fact that I reckon Resimac's the cheapest billion-dollar stock on the stock market, with the guidance of, AUD 100 million or AUD 105 million. That probably puts you on a PE of 10 or so. I wanted to ask you, where do you think your three or four-year vision, where do you think you can get your loan book? You're at AUD 15 billion these days.
Also, can you make some commentary around the asset finance business? I'm particularly interested in that in lieu of the opportunity when you look at some of the profit that Liberty has. If you can give me some commentary there, that'd be great.
Yeah. Without giving you a number, Cyril, in terms of, let's just talk about the home loan book. Our intention, and we believe our opportunity is to continue to grow that book well above system. It is our intention to also leverage off the fact we play in the prime market, but also the non-conforming market. They don't always operate the same way. Sometimes the non-conforming market can be somewhat countercyclical. We are though buoyed by the fact that listening to government, and they're very much focused on small business, they're very much focused on the self-employed. We see that non-conforming channel as an important one.
At the same time, it's probably been, because that is that sector that's been hurt probably the most by COVID, we probably see a bigger pickup there in that market as that recovers a bit slower out of the impact of COVID. We're encouraged and we're very positive about our ability to continue to grow the home loan book of our system well into the future. Let's call it three to five years. In relation to the asset finance book, our opportunity is greater than that again. That said, we are coming off a low base. We're new to that market. The good thing is we're not new to the funding side of that market. We're not new to the distribution side of that market.
We're just new to that particular asset class. As I've always said in the past is, our market is very much assets that are securitizable and in most cases are secured. The adjacent opportunity in asset finance for us, I think, is greater than any other company because we're coming to it pretty warm, knowing that market, knowing the funders in that market, knowing the distribution opportunities in that market. The response from our funding partners and our distribution partners as soon as we announced to the market we're entering into asset finance has been extremely positive. In terms of our opportunity and our ability to grow that book, it is multiples of what we would expect to grow our home loan book by.
It's probably easy for me to say considering we have an AUD 13 billion book and obviously coming off a higher base. It's just as important to think about that in the context of NIM management. We play in the prime market, and that is a very tight margin market. Obviously the way that I think we've articulated how we're approaching it is, we're happy to play in that market. It's a very, very low risk market, and we generally price under anybody else in the prime RMBS space because of the quality of our portfolio and the credit discipline that we've demonstrated over a long period of time. What's important is we continue to focus on the cost base in that channel because we know that margin is quite tight. It is the biggest market in town.
It represents 90% of the home loan market, is the prime market. You need to be in it if you want to grow. It is just as important we are leveraging off the other strengths, and that is our non-conforming home loan opportunity, which are again, multiples of the margin we earn in prime, and asset finance is probably multiples again of that opportunity. Sometimes off a lower market share or ticket size in that particular space. The way we look at it is we have the ability to put existing products into a new market, being, let's say, the broader consumer and SME asset finance market. There is an opportunity for us to put those products also into an existing audience.
It is extremely complementary to our business, not just the infrastructure and the expertise being funding and distribution, but it is very complementary to AUM growth and NIM management.
To sort of an aspiration, is it fair to say that, with the asset business, that potentially that could be an AUD 2 billion-AUD 3 billion book in three to six years or something?
Look, AUD 2 billion-AUD 3 billion in asset finance is, you're giving kind of big numbers and also a big range. I won't say no to six years, I'll say AUD 2 billion-AUD 3 billion in three years would be very difficult.
Yeah. Obviously the opportunity is that if you were to do AUD 2 billion-AUD 3 billion over that time, that that would be the same contribution, as your loan book being, I don't know, somewhere between AUD 6 billion-AUD 9 billion. Yeah, I understand that component. Just a specific question in relation to Jason was talking about provisioning and whether you wrote some back. I assume that the bumper forecast of AUD 100 million-AUD 105 million, does that assume that there is no release back, or have you assumed that you might write some provision back?
No, we haven't forecast that we'll write any provision back.
Okay. Any release would mean that that AUD 105 would be larger.
Yeah, if you take the mid-range, yeah.
Yeah. Okay. All right. Well, thanks, guys. From my perspective, a PE of 10.5, return on equity mid-30s, compound growth of 30% and, a PE discount to your peers of 50%. I'm a very happy holder. Well done, guys. I like the optionality in the asset finance business. Well done.
Thank you. Thank you, Cyril.
Thank you, sir, and I do apologize for that, Cyril. Your next question is from the line of Ron Shamgar from TAMIM Asset Management. Please go ahead. Thank you.
Yeah. Hi, guys. Yeah, well done on the results. I have a few questions. First one, just quickly, if I do get a home loan with you guys, do I get a set of steak knives included?
Is it a deal, though? Is it a viable rate? ?
Yeah, no. My questions were regarding So you gave the first half NPAT guidance of AUD 48 million-AUD 53 million. You obviously came in at AUD 50.5 million, which I think it was part of the reason the stock got sold off because there was an expectation that you have a history of being conservative, so at least come in the top end and maybe beat it. The question is, what changed for you guys to come in towards the bottom end of that first half guidance?
Bottom end, it is exactly in the middle, 48 and 53. We got 50 and a half. It's actually, you'd almost call it forecasting genius, but I won't call myself that. Not a lot changed, to be honest. If you're looking for a significant swing factor, what's happened since then is settlements were probably a little bit higher than we expected when we advised the market at the end of October. As I touched on, the decision on the accounting treatment of our major project resulted in us coming to the accounting treatment that we've fully written off this year. That's AUD three and a half million in total, so AUD two and a half million of impact .
If you factor that in as being a swing of either capitalized or written off, that would have taken the number to AUD 53. You could deem that. When we did the guidance, we hadn't decided that, but we're comfortable that that's the one, the correct accounting treatment and so are our auditors. Two, from a shareholder perspective, it avoids the drag of depreciation for the next few years. We'll get it in this year. It'll be fully expensed, and it'll be just down to BAU expenses. I think it's a positive, for now and for the future.
Yeah. Okay. Then, as per sort of Cyril's question, the asset finance business I'm assuming that's about AUD 100 mil of loan book at the moment. For you guys to really accelerate that, would you be looking at maybe acquiring other businesses to bulk it up quicker, or would you sort of just grow organically?
Good question. Now that we're actually in that space, we're actually a lender with the infrastructure, with the operations, with the funding facilities, it does open up inorganic opportunities to grow that book potentially quicker. We look at it, and right now we're kind of comfortable just organically growing that book because it lets them know it is being filtered through our credit disciplines, which obviously underpins the value of Resimac, if you look at the credit discipline that we're applying to our AUD 13 billion home loan book. That said, we are and will always be opportunistic if any inorganic opportunities arise. That includes book purchase on the home loan side, that includes book purchase on the asset finance side, or any other inorganic opportunity that is obviously complementary to our business strategy.
That opportunity is absolutely there. We're not looking at it and forecasting into the future, thinking we need to be buying books to actually get to a meaningful size where it is a meaningful contribution to the business going forward.
Okay. The other question is, I think there's a sort of, I guess, a similar business to you guys that's been around for a while called Money3. I'm sure you're well aware of them. I think what they've recently started doing and giving confidence to the market is they've set a sort of a loan book target for the next sort of few years that they're trying to achieve, and every year that goes past, they're sort of showing their traction to hit that. I think they're targeting a billion-dollar loan book.
Can Resimac at some point set some sort of a target for investors where, can you get to, I don't know, whether it's AUD 20 billion or AUD 30 billion loan book in the next sort of three to five years or whatever the number is, and give that confidence to investors as you progress through the years that you're hitting that target? Is that something that you potentially could do?
Look, it's not something that we're looking to do at this stage, Ron, to put a stake in the ground three years out. We do every now and then make aspirational statements. I think your book one can be challenging because it's obviously led by market and also strategy. What I will say, and I think I said off the back of Cyril's question, is our opportunity and our aspiration is to grow both of those books relative to system for the long term. I think there can be a real focus on book size. I think at the end of the day, we're growing double digits year on year on year, period on period. Margin is as much of a focus, if not more, than book size.
It's very, very important that we're pricing to maintain margin. We're not going to chase growth to achieve a number to completely erode our margin. If we were playing in some of the pricing that's been going on in the market, potentially we may have done that. The margin, we take pride in the margin. It's important we're maintaining it. Most banks' margins declining, ours are increasing. We've got a real focus on that. I think if you have a look at the number of some of those brands in the market that are not around anymore, that lacked that discipline because they were simply focused on AUM growth, and that's driving every decision they were making. You know the brands I'm talking about.
Where they lost their way is a lack of credit discipline. Once those losses start running through your book, it's very hard to stop it. As Jason mentioned, it is a combination of assets under management. It's a combination of NIM management, but it's also that credit discipline to make sure that our delinquencies and losses are at a level we're comfortable with.
Yeah. This last one from me. Is there a reason why the dividend payout ratio is quite low, considering you r cashflow are very profitable?
Yeah. Dividend increase 100%, payout ratio remains in the 20s. I guess our view is we're running a very, very capital efficient business here. That's demonstrated in a ROE of 38.7%. We believe we're demonstrating to shareholders that the equity we're retaining, we're using very effectively. That we're not necessarily there for yield. We're here for capital growth, and we've delivered that. We're continuing to deliver it. As I said, we're very focused on using that equity efficiently. With our foray into asset finance most recently, we believe is going to deliver good returns to shareholders.
Yeah. Okay. Thanks. Great result.
Thank you very much. Yeah, no further questions at this point, Mr. McWilliam and Mr. Azzopardi. Please continue. Thank you.
Okay. If there's no other questions, thanks everyone for your time today. As usual, if you have any other questions, feel free to reach out to us directly. Thank you.
Thank you, sir. Ladies and gentlemen, that does conclude our teleconference for today. Thank you for participating. You may all disconnect. Thank you.