Ladies and gentlemen, thank you for standing by, and welcome to the Resimac Results Teleconference. At this time, all participants will be in a listen only mode. There will be a presentation followed by a question and answer I would now like to hand 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 high year ended 31 December 2020. My name is Scott MacWilliams, CEO of Resimac and with me is Jason Azzopardi, our CFO. We will 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-nineteen 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. Now please ask everyone to turn to Slide 3. Jason will start with performance highlights underlying our strong performance compared to first half 'twenty, our previous corresponding period.
Thank you, Scott.
In 1 half 'twenty one, the group generated $50,500,000 of profit after tax, an 88% increase compared to first half twenty twenty. This profit increase is underpinned by a 45% increase in net interest income to $122,100,000
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, an 1100 basis points decrease. And finally, we are pleased to report annualized return on equity of 38.7 percent for the period.
The group also settled $2,140,000,000 of home loans during the period. While slightly down on the previous corresponding period, we're pleased with settlements remain 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 $12,900,000,000 Our growth is underpinned by our consistent and timely service offering to third party to the 3rd party channel.
Furthermore, 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, home loans.com.au, which ended the half with record settlements only 4 months after launch. I'm also pleased to report that the Board has declared a fully trans interim dividend of $0.204 per share, a 100% increase on the prior year. Moving on to Slide 5. 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 Resimax history and will transform the banking experience for customers and their loan origination process, developing a fully digitized platform for customers and for brokers. During the half, we incurred $3,500,000 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 third out circa $4,500,000 of costs in relation to this project in the second half twenty twenty one as the project needs completion.
Moving on to Slide 8, 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 'twenty and the organic yield runoff from the aggressive price competition in the Australian home loan market. Our funding costs, thus the margin we pay above DBSW on our RMBS and warehouse facilities, increased 7 basis points during the period as pricing on both funding instruments increased during COVID. Over the last 3 to 4 months, we have negotiated material decreases in warehouse pricing and recent market RMBS pricing indicates our impending RMB1.5 billion deal will be priced well below our recent issuance. We expect both warehouse and RMBS pricing to provide NIM tailwinds in 2021.
And finally, BBSW continued to reset lower during the period with an average BBSW of 8 basis points during the half. BBSW is currently resetting at 1 basis points, 1 basis point and we expect this to remain the floor.
Thanks, Seth. Moving to Slide 10. Our portfolio continues its outstanding performance with the REIT as at December 'twenty lower than pre COVID REIT as at December 'nineteen. Furthermore, we increased our collective provision by $2,900,000 to $33,500,000 as of 31 December 'twenty, further strengthening our balance sheet covering the 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 $294,000,000 of loans. The weighted average dynamic LVR of these loans is 71% for prime and 73% for specialist. Only $22,000,000 of loans without LMI have a dynamic LVR of 90% or higher. And lastly, our COVID overlay of $16,400,000 remains in place at 31 December 2020.
We will review the appropriateness of this overlay at 30 June 2021. Moving to Slide 16. On Slide 16, we have outlined the key focus areas for the next 6 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. Once our assets under management now exceeds $15,000,000,000 Redneck 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 seamless digital experience. We are halfway through this project and we expect to be completed later this year.
Resimac Asset Finance. On the 1st February, as announced, I'm pleased to report again that we moved to 100% ownership of IA Group, now rebranded Resimac Asset Finance. This channel provides access to a new market diversifying earnings over the coming years. We view Resimax Asset Finance as a high growth channel, leveraging Resimax 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 any questions.
Thank you very much, sir. Your first question is from the line of Damian Williamson from Bell Potter. Please go ahead. Thank you.
Yes. Hi, Scott and Jason. Well on the result, can you just give us there's 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 always very low fixed rate mortgage products and how that's how you're seeing that's impacting your settlement pipeline?
Yes, sure. And 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 and is a tailwind for our business just like other lenders leading into calendar year 2021. And in the 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 Q1. And that's because there's obviously still a lot of noise in relation to uncertainty in relation to COVID in that Q1. 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 we've seen today.
Okay. And just also another question on turnaround times. I think in the severe lockdowns back in around that April, I was I think groups like AFG were noting that some of the major banks in particular A and D, their turnaround times on mortgages were up around 40 days. Your turnaround times on mortgage approvals typically remained like 24, 48 hours, that type of range. Does that help with your mortgage loan book growth?
Look, yes, it does. And 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 midyear, kind of, let's say, kind of the heart of COVID after 4 or 5 days. But as you mentioned, Damien, when we're at 4 or 5 days, the market was still at 20 days. And it is an important part of our service offering.
Speed and certainty for those who have been on these phone calls and listen to Jason on in part is an important part of our value proposition, and we continue to operate today. And I think that really does underpin the pipeline that we're looking at.
Okay. And just as a final question, just on the influence of the RBA and the quantitative easing, you're seeing the unprecedented scenario where you got bank bill 9 basis points above RBA cash versus scenario you faced not so long ago, bank bill being 50 basis points above RBA cash. Did you say that when how long do you see bank bill remaining at these levels like below or do you see going back to 10, 15 basis points above RBA cash at some stage later this year once the term funding facility say unwinds or did you have an expectation on what's going on there?
Just to make sure I answer your question, are you specifically talking to VBS Avenue or talking to credit?
Yes. It depends on the bank will swap product because that's obviously made a massive tailwind on your net interest margin.
Yes. 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. And that is we'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 6 to 12 months and potentially running up to what is the cash rate today, 10 basis points in 2022, 2023.
And so our outlook and our expectations for BBSW to remain low.
So for BBSW to remain below RBA cash for the rest of the year, we can't think of that. That's what you yes, okay.
Yes, that's what the Magic Bank,
100.
Okay. Thanks a lot. Well done.
Thank you very much. Your next question is from the line of Tony Mitchell from Ordinance.
Just on the home settlement 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 when you say continue to decline. I think our settlements trajectory has been from the mid-3s to a bumper year last year and this year down slightly on prior comparative period. I think it's important to think about the half of just coming in terms of Victoria in lockdown for most of that half and 0 property sales there. So I went from a buying and refi market to only a refi market. So we see 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. So for us, we see settlements at a level now where we want to continue into the second half and then grow from there. The market is continuing, but we don't we absolutely see opportunity to grow.
Are you disappointed? You've just come out with an absolutely cracker result in the stock market and actually 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 a surprise as you're talking to just the early response this morning, let's say, 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. So we're surprised. I don't think the set of numbers would be a shock because I think we provided guidance at the end of last year and where we've landed at 2.1 is probably better than where we provide guidance to the market in November. So I don't see that as a surprise or should not be a surprise. But to Jason's comment is we're not sitting here worried about settlements numbers right now when we look at the opportunity going forward.
And 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. I mean, we're just focused on I think we continue to focus on what we can control, and that's 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 IoT? 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?
Yes. I'll start just on the financials. So we spent $3,500,000 in this half, and we've taken the accounting approach to fully expense that rather than it being a drag on the P and L in the future, mainly because it is cloud based, and we don't have full ownership of it. We decided the appropriate training was to write it off. In the second half, we expect to spend about $4,500,000 which will also hit the P and L, so $1,000,000 up on this half.
And then in FY 2022, we would think that would be $1,000,000 to $2,000,000 in total. And so the benefit 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. And Scott might want to just talk about the digitalization benefits.
Yes. There's a number of benefits to it, but it's sort of internally, it's all about adjacent point of view. It's all about cost efficiency and scale. So how is it that Redeemak can settle $4,000,000,000 in a half if the opportunity presents itself without materially changing our cost base? And therefore, the 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 thing that's really important is actually just remaining relevant in the market, and that is consumers today and their expectations of point of the services companies in terms of their banking functionality is in lightening this market. So it's important 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. So we also look at the back end experience and we think, okay, well, what is it that we're not offering customers today despite our, obviously, our strong growth over the last 3 years. Where are those pieces?
Where are those pain points you're not covering off of? And our digital platform and our digital experience, obviously, continuing the investment we're making, it will require further work to make sure that we are in front of that curve in terms of providing a true digital experience to customers. So 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. Where do you expect the cost to ink after so when will it be fully finished? So you're ready to get the benefits of it?
So after that, 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 can obviously focus the customers to see that benefit as well as existing customers as well as new customers. But I think when you think about technology and digitization and the fact that the big part of our service offering going forward is you never really finish your digitization journey. But 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. So where will the cost to income ratio once you've 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, but at the end of the day, it's a subject of growing income faster than we grow expenses. And this one off expense in 2021 won't be there in 2022. And then we want to, as we've talked about, continue to grow the business, how can we settle $5,000,000,000 $6,000,000,000 $7,000,000,000 per year and maintain the cost base. And obviously, that brings revenue benefits. What this project also does is it enhances our current customers' banking experience.
And we know that needs improving, and that's going to help us with retention, which also helps with our book growth.
And it would be a given to say that you the expenses that you're doing for the IT were obviously building your profit forecast?
The profit forecast in the outlook, the guidance we've given?
Yes.
For FY 'twenty one, correct. That 4.5 is included in that.
Yes,
yes, yes. 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 $8,000,000 That is a one off.
So next year, aside from the $1,000,000 to $2,000,000 you might spend extra in FY 'twenty two, that is not going to be repeated?
Not that particular project.
No. Right. Yes. So the 1 to 2 mil will definitely be in Andree in FY 'twenty two. But yes, that project will complete and that's circa $10,000,000 project.
That's a one off project.
Okay. And in terms of NIM, I guess, in the slide, you alluded to warehouse pricing coming down at the end of the half. What can you quantify, I guess, that, I guess, NIM tailwind from reduced warehouse pricing?
Yes. We've got 7 warehouse providers, a mix of offshore and onshore. So some of the pricing has been negotiated. Some of them some of the repricing events are still to occur. But we have got a tractor rate.
So 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 $1,500,000,000 RMBS deal, which means the pricing for that will be out pretty soon, Andrew. And 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 we have some different RMBS, but it will be a decent bellwether for you.
Yes, yes. So but it only fluctuates all portion of your book, I guess, the portion that's funded by the warehouse and the portion that's funded by this new issue?
Exactly. Exactly. So it's not that amount total book, but it's obviously a portion of it and then 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. And I guess in the second half, you have a BBSW tailwind of 7 bps based on the average in the first half. So 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 7 book growth?
That's right. Yes. And you got obviously the organic squeeze or run off on NIM that you have on your book, which has been there forever and a day, is going to further amplified in this heavy refinance market as well as, obviously, competing for new business. But you pointed out the 2 tailwinds, and that is obviously there's still further movement in terms of the average PVSW over the period as well as in 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 $13,000,000,000
Okay. And just lastly, on the $2,100,000,000 settlements done in the first half, can you provide my Q1 versus Q2 split?
Q2 was stronger than Q1. I don't know the exact amount on me, but there may be $100,000,000 or $150,000,000 difference.
Okay. All
right. Great. Thank you.
Thank you very much. Your next question is from the line of Ray Jin from Australian Ethical Investors. Please go ahead. Thank you.
Good morning, Scott. Good morning, Jason. Getting back to the NIM, before that moving parts there, is your exit NIM around about what the period NIM was, 2.11?
Sorry, say that again. Was the 30 months
Yes. So 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 of the deposit cuts?
Yes. So on the three components,
we would expect that BBSW
will be a tailwind given where it's recessing at the moment. It was an average of 8 basis points in the first half. We probably expect that to be still in the second half given the current where 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 9 basis points, about 9 to 10 basis points. And then 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.
But you've got to remember that if we do an RMBS issuance in March, it doesn't affect the second half that month, so we'll receive that benefit much more in 20 FY 'twenty 2.
So it sounds like that 2.1% is maintained unless you compete it all the way?
Yes. We think we can maintain it, yes.
Yes. Okay.
Yes. We think we can maintain. I mean, what's happening in the market is clearly yields have been coming under pressure for a while. And now funders from the market is coming down the expectation there as well. So that's our focus is ensuring that our credit spreads are reducing in line with our yields are.
Right. Just moving on to the deferred loan balances, dollars 2.94 in December, does that continue to decline up to today?
So we've got the 31 January data. It's slight improvement. While 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 6 months. So during the Victoria one of the second half, we actually had some new people acquire and they've granted 6 months.
So they'll start to 6 month period 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. And it just didn't help over Christmas when there's lockdowns and it does set confidence. So we just want to take the appropriate approaches to watch this half, monitor it all. Even the customers that have come off deferrals, ensure that they maintain payments for the 1st 6 months off the deferral, and then we're in a lot better position to give an update at year end.
Okay. And some of those preferred customers moved on to a hardship scheme?
Yes, but not many. And our arrears are performing really, really well. So it's performed as well as we could have hoped for COVID hit. We couldn't have imagined we'd be in the spot we're in now.
Right. That's the right question to be asked because that's the leading indicator is
how many
of those customers are actually then moving into what is a more traditional arrears arrangement. And as Jason's point, we're pleased with kind of the small numbers that are moving through into a normal risk cycle. And so 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 because it's a factor of 2 things, and that is probability of default and underlying asset prices or equity in the property. So we're looking at these numbers today being delinquencies and 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. So the outlook is a lot more positive today than what
it was 6 months ago. Okay, right. And just finally, you were writing loans obviously way above system. As of sort of today, are you still above system?
We are.
Okay. So people should worry about those settlements then, should they?
Look, I think there's a lot of activity in the market. Yes, so I look at it's a good point, guys. The volume if we're writing $4,000,000,000 in a year, we're still growing our book of our system. Would we like to write in $5,000,000,000 in a year? Yes, absolutely, we would.
But you get to a point where profitability on a loan is important. So 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 will it's probably a short term strategy. And 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.
So that kind of that heat we believe is coming out of the market. And as I mentioned earlier on the phone call, we are we're pleased with the pipeline we're looking at today and the activity that we're seeing today. In second half, you guys are better than most range. The second half, from a volume perspective, is normally less than your first half because you obviously have that January and February effect every year. What I can say is January and February from an application perspective was stronger than what we expected.
Good to hear. And you never offered cash rebate at any stage, did you?
Absolutely not. We don't. We hold on to our cash rate.
Okay. Thank you.
Thank you very much. Your next question is from the line of Rob Serban,
a private investor. Please go ahead. Good figures, Scotty and Jason. Very well done. It's the reaction obviously in the market this morning on was purely, really on the settlement figures.
And I think you've explained it very well, particularly with the whole COVID situation in Victoria, losing significant volume from the 2nd biggest market in Australia for the 3rd period of time is obviously going to fit settlements. But the other thing is that we were I was, anyhow, quite surprised by the magnitude of the provision you made in the last 6 months, which was, I thought, a very substantial amount. I could understand why you did it. But I was a little bit surprised that given the improvement in the book, etcetera, and the impairment scenarios or potential impairment scenarios that you made another provision of 2.9 percent. I thought perhaps there might not need to be any more provisioning.
If you added back the provisioning you made of the 6 months to the declared figure, you are actually at the peak end of your projection between 47% to 53% you made a couple of months ago. So I think people need to look at these figures in the light of what you're saying and hope that the market will and will give due credit to your share price based on the underlying performance that new blokes have achieved, which I think is a fantastic year, but well done.
Thank you. And just to touch on that is
you it could be deemed conservative. I mean, we look at provisioning as a basis point coverage of our assets under management. So whilst we are increasing assets under management well above system, I mean, with 48% 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. And that's what we try to achieve to protect ourselves against potential future economic loss.
The performance in terms of arrears, etcetera, when you combine the arrears and the credit provision, you could say that there's an element of conservatism in there. And as I sort of touched on, we did take a last provision at year end for the unknown. We haven't released any of that, but we will be looking at that for year end. And 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.
Fair enough. All right. Thank you.
Your next question is from the line of Cyril Jink from Bell Potter.
You can call me Cyril as well.
Cyril, Cyril is good. Cyril is good.
A new investor to the market. Congratulations on the results. 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. So revenue actually was up 9%. So I think there's just a bit of confusion on terminology there.
So that will wash away. I just wanted to raise the eyes a little bit. So putting aside the fact that I reckon ReziMAX, the cheapest $1,000,000,000 stock on the stock market, with a guidance of $100,000,000 or $105,000,000 That probably puts you on
a PE of $10,000,000 or so. But I wanted to ask you, where do
you think your 3 or 4 year vision, where do you think you can get your loan book?
You're at $15,000,000,000 these days. And also, can you make some commentary around the Asset Finance business? Because I'm particularly interested in that in lieu of the opportunity when you look at some of the profit that Liberty has. So if you can give me some commentary there, that would be great.
Yes. So without giving you a number, Cheryl, in terms of let's just talk about the online book. Our intention and we believe our opportunity is to continue to grow that book well above system. And it is our intention to also leverage off the fact we pay in the prime market but also the non conforming market. And they don't always operate the same way.
Sometimes the non conforming market can be somewhat kind of difficult. And we are though, brought by the fact that listening to government and they're very much focused on small business, they're very much focused on self employed. We see that non conforming channel as an important one. But also, at the same time, it's really been because that is that sector that's been probably the most by COVID. We probably see a bigger pickup there in that market as that recovers a bit slower outside of the impact of COVID.
So we are quite 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 3 to 5 years. In relation to the asset finance book, our opportunity is greater than that again. And then but then 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. And as I've always said in the past, our market is very much assets that are securitizable and in most cases are secured. So the adjacent opportunity in asset finance for us, I think is greater than any other company because we come into it pretty warm knowing that market, knowing the funders in that market, knowing the distribution opportunities in that market.
And the response from our funding partners and our distribution partners as soon as we announced to the market, we're entering into asset finance and been extremely positive. So 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. And it's probably easy for me to say considering we have a $13,000,000,000 book and obviously coming off a higher base. But it's just as important to think about that in the context of NIM management. So we play in the prime market and that is a very top margin market.
And 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 R and D space because of the quality of our portfolio and the credit discipline that we've demonstrated over a long period of time. But what's important is we continue to focus on the cost base in that channel because we know that margin is quite high. But it is the biggest market in town, represents 90% of the home loan market is the prime market. So you need to be in it if you want to grow.
But it's just as important we're leveraging off the other strength, and that is our non conforming home loan opportunity, which are, again, multiples of the margin we've earned in prime. And asset finance is probably multiples again of that opportunity, sometimes of a lower market share or ticket size in that particular space. But 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. But there's an opportunity for us to put those products also into an existing audience. So it is extremely complementary to our business, not just the infrastructure and the expertise by funding and distribution, but it's very complementary to AUM growth and new management.
So to sort of an aspiration, is it fair to say that with the asset business that potentially that could be a $2,000,000,000 to $3,000,000,000 book in 3 to 6 years or something?
Look, dollars 2,000,000,000 to $3,000,000,000 in asset financing in you've given kind of big numbers and also a big range. I won't say no to 6 years, but I'll say $2,000,000,000 to $3,000,000,000 in 3 years would be very difficult.
Yes. Yes. And obviously, the opportunity is that if you were to do $2,000,000,000 to $3,000,000,000 over that time, that would be the same contribution as your loan book being somewhere between $6,000,000,000 $9,000,000,000 So yes, 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 profit forecast of $100,000,000 to $105,000,000 does that assume that there is no release back?
Or have you assumed that you might write some provision back?
No. We haven't forecasted that we'll write any provision back.
Okay. So any release would mean that, that $100,000,000 $105,000,000 would be larger?
Yes. If you take the mid range, yes. Yes.
Okay. All right. Well, thanks, guys. From my perspective, a PE of 10.5 percent of channel equity, mid-30s, compound growth of 30% and a PE discount to your peers of 50%, a very happy holder. So well done, guys.
The optionality in the Asset Finance business. So well done.
Thank you. Thank you, Spot, Tyrone.
Thank you, sir. And I do apologize for that, Tyrone. Your next question is from the line of Ron Shandar from Teman Asset Management. Please go ahead. Thank you.
Yes. Hi, guys. Yes, well done on the results. I have a few questions. Yes, first one just quickly, if I do get a home loan with you guys, do I get a set of tax notes included?
Yes. No. So it's just the my questions were regarding so you gave the first half NPAT guidance of 48 to 53. You obviously came in at 50.5, which I think was I think it was part of the reason the stock was 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 bid it. And so the question is what changed for you guys to come in towards the bottom end of that first half guidance?
So bottom end, it's exactly in the middle, 48, 53,
we got 50 above.
So it's actually you'd almost call it forecast ingenious, but I won't call myself that.
Okay. We what so not a
lot changed, to be honest, but if you're looking for a significant swing factor, what's happened since then is settlements are probably a little bit higher than we expected when we go across the market at the end of October. But as I touched on, the decision on the accounting treatment of our major project resulted in us coming to the accounting treatment that we're fully writing off this year. And that's $3,500,000 in total, so $2,500,000 of impact. So if you factor that in as being a swing of either capitalized or written off, that would have taken the number to $53,000,000 So that you could deem that. When we did the guidance, we hadn't decided that, but we're comfortable that that's the one that we correct accounting treatment and so are our auditors.
And 2, from a shareholder perspective, it avoids a drag of depreciation in the next few years. We'll get it in this year. It will be fully expensed. And it will be just down to BAU expenses. So I think it's a positive for now and for the future.
Yes. Okay. And then as to sort of Cyril's question, the asset finance business, I'm assuming that's about $100,000,000 of loan book at the moment. I mean, what I mean, for you guys to really accelerate that, I mean, would you be looking at maybe acquiring other businesses to bulk it up quicker? Or would you sort of just grow organically?
Good question. So now 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 at least then we know it is being filtered through our credit discipline, which obviously underpins the value of Reading that.
If you look at the credit discipline that we're applying to our 30 business on our 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 and includes book purchase on the asset finance side or any other inorganic opportunity that is obviously complementary to our business strategy. So that opportunity is absolutely there. But we don't kind of 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. And then 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. And I think what they've recently started doing and giving confidence to the market is they've set sort of a loan book target for the next sort of few years that they're trying to achieve. And they sort of every year that goes past, they're sort of showing their traction to hit that.
I think they're targeting the $1,000,000,000 loan book. I mean 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 $20,000,000,000 or $30,000,000,000 loan book in the next 3 to 5 years or whatever the number is and sort of 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 3 years out. We do every now and then make aspirational statements. But I think your book 1 can be challenging because it's obviously led by market and also strategy. So what I will say and I think I said on the back of Stuart's question is our opportunity and our aspiration is to grow both of those books well above system for the long term.
And 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. And 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. So we're not going to chase growth to achieve a number to completely erode our margin.
And 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 have margins declining, ours are increasing.
We've
got a real focus on that.
Okay. And also, I'm sorry,
some of those brands in the market that are not around anymore that lack that discipline because they are simply focused on AUM growth and that's driving every decision they're making. And the brands I'm talking about, they where they lost their way is a lack of credit discipline. And once those losses start running through your book, it's very hard to stop it. So 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.
Yes. And then just last one for me. Is there a reason why the dividend payout ratio is quite low considering you don't have I mean, you could cash that very profitable?
So dividend increase 100%, payout ratio remains in the 20s. And I guess our view is we're running a very, very capital efficient business here. And that's demonstrated in a rally of 38.7%. We believe we're demonstrating to shareholders that the equity we're retaining, we're using very effectively. And 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. And then as I've said, we're very focused on using that equity efficiently with our foray into asset finance most recently, we believe it's going to deliver good returns to shareholders.
There are no further
Okay. If there's no other questions, thanks everyone for your time today. And 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.