Suncorp Bank Upsizes $1.25 billion RMBS issue

Suncorp Bank today confirmed it had finalised pricing for the APOLLO Series 2017-1 Trust transaction, which was upsized from $500 million following its launch on 20 February, 2017. It shows the securitisation market is accessible, at reasonable prices.

After investor meetings in London, Melbourne, Sydney and Brisbane, a total of 60 bids from investors were received from Asia, UK, New Zealand and Australia. Six classes of notes were offered to the market and the best was A$1,150,000,000 at BBSW + 113 bps.

Suncorp Banking & Wealth CEO David Carter said the transaction demonstrates Suncorp’s strong position in the market, and ability to access a diversified group of investors onshore, and offshore.

Suncorp has now completed 22 APOLLO transactions since 1999. It forms an important part of our diversified funding program, supporting the strength of the balance sheet and profitable growth,” Mr Carter said.“It is also reflective of the quality of Suncorp Bank residential mortgage backed securities and the value placed upon the APOLLO program by investors.”

Suncorp wealth arm placed on ‘negative watch’

From InvestorDaily.

Suncorp’s life insurance and superannuation division has been placed on ‘negative watch’ by S&P after the bank revealed it is considering “strategic alternatives” for the business, including divestment.

In a statement released yesterday, S&P Global Ratings said the strategic importance of Suncorp Life and Superannuation Limited (SLSL) has “weakened” following statements made in Suncorp’s annual result.

In last week’s annual result announcement, Suncorp revealed it is implementing an “optimisation program” for its Australian life insurance business as well as “exploring strategic alternatives”.

In response, S&P has lowered its financial strength and issuer credit ratings on SLSL to ‘A’ from ‘A+’, which it said “reflects a reduced level of uplift in the rating from group support”.

S&P said it has also placed Asteron Life’s ‘A+’ rating on watch with “negative implications, reflecting uncertainty as to the level of integration of the entity with the group”.

The research house said Asteron Life is now only “strategically important” for Suncorp – a downgrade from its previous “core status”.

“This downgrade follows Suncorp’s announcement that it has undertaken a strategic review of its Australian life insurance operations, which includes potential divestment of the operations. As such, we no longer consider SLSL as being highly unlikely to be sold,” said S&P.

“The weak operating performance of the life operations relative to group expectations has  triggered the group’s strategic review. This weaker performance also contributes to our assessment of slightly lower group support for SLSL compared with that for Asteron Life,” said S&P.

“We expect the continued strength in [Asteron Life]’s inforce premiums, operating experience and emergence of planned profit margins to support the financial contribution of the group’s New Zealand life operations, in contrast to SLSL’s weaker operating performance.”

Suncorp 1H to Dec 2016 – Looking Better

Suncorp today reported net profit after tax (NPAT) of $537 million (HY16: $530 million) for the six months to 31 December 2016. Profit after tax from business lines increased 12.7% to $613 million (HY16: $544 million).

The Group has been working hard to get performance up, and despite pressure on banking margins, and adverse insurance claims from New Zealand, management of the insurance businesses is clearly tighter.

The result included natural hazard claims costs of $350 million (HY16: $362 million), Investment earnings of $79 million (HY16: $133 million), reserve releases of $131 million (HY16: $137 million) and a loss on sale of Autosure of $25 million.

After accounting for the interim dividend, the Suncorp Group’s Common Equity Tier 1 (CET1) is $448 million above the operating targets.

The General Insurance CET1 is 1.23 times the Prescribed Capital Amount and Bank CET1 is 9.20%. The Group has $230 million of franking credits available after the payment of the interim dividend.

Shareholders will receive an interim dividend of 33 cents per share fully franked (HY16: 30 cents) representing a payout ratio of 72% of cash earnings.

Insurance (Australia)

Insurance (Australia) NPAT increased 42.5% to $369 million due to top line growth, lower claims costs and disciplined expense management.
Gross Written Premium (GWP) growth of 6.2% was primarily driven by the CTP portfolio. Consumer Insurance benefited from industry stabilisation with Home and Motor GWP increasing 2.4% and 1.6% respectively.The Commercial Insurance market continues to be highly competitive with GWP growth of 0.4% reflecting a prudent approach to pricing and risk selection.

CTP GWP increased 27.3% due to Suncorp’s successful entry into the South Australian market and growth in New South Wales which was supported by improving claims metrics. Insurance (Australia) reserve releases of $149 million reflect the benign inflationary environment and Suncorp’s management of long-tail claims.

Banking & Wealth

The Banking & Wealth business delivered NPAT of $208 million reflecting improved operating expenses and strong credit quality. In response to some unsustainable competitor pricing, the Bank focused on profitable growth through the optimisation of price and volume.

Lending grew 2.5% over the past 12 months.

Total assets were $54.2 billion, of which home lending was $44.1 billion, half of which is in QLD. 65% of business came through intermediaries. High LVR loans are down significantly. Overall home lending grew below system.  Deposit to loan ratio was 67.2% up a little on a year ago.  During the half, the Bank funding mix changed with a 5.5% reduction in retail term deposits and an increase of 6.7% in at call deposits primarily driven by growth in personal transaction accounts.

Following a targeted campaign in December, the housing loan portfolio is expected to grow in the second half.

The net interest margin (NIM) of 1.78% was impacted by the lower cash rate and aggressive competition, however it remains within the target range of 1.75% to 1.85%.

Operating expenses improved by 5.8% resulting in a reduction in the cost to income ratio from 53.0% to 51.4%.

Gross non-performing loans improved by 14.3% over the past six months resulting in impairment losses of $1 million (less than 1bps), well below the target range of 10bps to 20bps of gross loans and advances.

The Bank has a tiered management limit structure for the LCR to ensure that an adequate buffer to the APRA prudential limit of 100% is held. The LCR is managed to market conditions and has been maintained comfortably above the prudential minimum since being introduced in January 2015. The average LCR for the half ending 31 December 2016 was 133%, ending the half at 130%.

The Bank is well placed to meet the proposed NSFR requirements, which will be introduced from January 2018. The Bank’s estimated NSFR at the end of the period was 106%.

Discussions continue with the APRA as part of progressing towards Advanced Accreditation. In parallel the Bank has undertaken changes to its processes and retail credit models as part of an industry wide alignment of the treatment of hardship. The Bank expects these changes to have some effect on reporting but no material impact to the risk or loss experience.

New Zealand

New Zealand NPAT of NZ$37 million was impacted by the Kaikoura earthquake and aftershocks (NZ$23 million) and new ‘over-cap’ claims from the 2010/11 Canterbury earthquakes (NZ$18 million) being notified by the Earthquake Commission (EQC).

Net incurred claims (NIC) were $372 million, up 22.8%, driven by the Kaikoura earthquake as well as several large commercial claims and strong unit growth in the consumer portfolios.

GWP growth of 4.8% was delivered primarily from the Home and Motor portfolios.

Included in the result was the New Zealand Life Insurance NPAT of NZ$18 million reflecting a 41.2% increase in underlying profits, and positive claims and lapse experience of NZ$5 million.

 

Suncorp finalises execution on New Zealand Autosure disposal

Suncorp said today on 21 November 2016, Suncorp Group (Suncorp) announced that it had executed the sale of its New Zealand Autosure motor insurance business to Turners Limited.

The sale results in a release of capital of approximately A$30 million and a post-tax loss on disposal of A$25 million. The transaction will be accretive to the New Zealand business’s long term return on equity (ROE). The adjustment will be booked in the Group’s HY17 financial result as a non-cash item.

The New Zealand financial result will also be impacted by further claims arising from the 2010/11 Canterbury earthquakes and the 14 November 2016 Kaikoura earthquake.

2010/11 Canterbury earthquakes

The outstanding claims provision for the 2010/11 events has increased by NZ$112 million primarily due to the notification of new ‘over-cap’ claims from the New Zealand Earthquake Commission. While the majority of these costs will be absorbed by Suncorp’s reinsurance program, the Group expects to incur a net cost of NZ$18 million in the HY17 financial results.
Kaikoura Earthquake and Natural Hazard Costs

For the six months to 31 December 2016, natural hazard claims costs in Australia and New Zealand are estimated to be $350 million, $40 million above the natural hazard allowance of $310 million. This includes NZ$50 million for the net impact of the Kaikoura earthquake on 14 November 2016, $60 million for South Australian/Victorian storms in November 2016 and $50 million for Victorian/South Australian storms in December 2016.

Suncorp Group will present its financial results for the six months to 31 December 2016 on Thursday 9 February 2017.

Suncorp Appoints a Customer Advocate

Suncorp has today announced the appointment of a Customer Advocate to drive better outcomes and experiences for its nine million customers.

Chief Customer Experience Officer, Mark Reinke, said the new function would work across the business to identify and deliver opportunities to provide even better services to customers.

The function will be led by Executive General Manager Customer Experience & Group Customer Advocate, Debra Tagg. Ms Tagg has been instrumental in designing new and improved customer experiences, developing and embedding customer culture and leading customer strategy and insights since she joined Suncorp in 2010.

“With her passion for delivering strategic customer programs across Suncorp and her strong background in customer service, Debra is the ideal choice to drive Suncorp’s focus for this role,” Mr Reinke said.

“She will be an integral part of all strategic programs that influence customer outcomes, as well as play a leading role in Suncorp’s Financial Inclusion Action Plan.

“We’re committed to increasing transparency and accountability around the decisions we are making for our customers every day. This new function will challenge our current processes, identify areas for improvement and make it easier for customers when things go wrong.”

Banking & Wealth CEO David Carter said the appointment delivers on a banking industry commitment to better protect customer interests, but will also cover Suncorp’s significant insurance business.

“Suncorp’s new business strategy is centred on delivering greater value for our customers, which this new function will help us achieve,” Mr Carter said.

“With new products and services coming online this year to transform how we help Australians manage critical decisions in their lives, a Customer Advocate will help to ensure our approach is grounded and delivering for our customers.”

The Customer Advocate will have direct access to our Group CEO & Managing Director and will build on Suncorp’s culture where all employees put customer advocacy at the heart of what they do.

Innovative platform to help kickstart SMEs

Suncorp says it is making it easier to start a business in 2017 with the launch of Suncorp Start Company.

Suncorp Start Company, a new online platform, brings together a diverse range of services and solutions to create a user-friendly guide for aspiring entrepreneurs.

Suncorp Customer Platforms Chief Executive Officer Gary Dransfield said the website connects customers with resources like legal and accountancy documents, business name registration forms and website development tools, which are essential to starting a business.

“It also provides access to educational tutorials, tips and plans to help recently established and trading businesses to take the next step,” Mr Dransfield said.

“Our research tells us that small businesses want to spend more time on building their business, not completing paperwork – early access to the right tools and information can set them up for faster success.

“With Suncorp Start Company we consolidated solutions from our partner companies and insights from customer feedback to develop a product which solves problems and helps to meet their needs.”

The new platform follows Suncorp’s partnership with 9 Spokes to bring to the market ‘Suncorp Business Toolbox’ – a business dashboard that enables customers to gain insights across their business.

“We know small businesses are busy. Suncorp is committed to making it easier for them to achieve their financial goals through solutions and services which are easily available as part of our new Marketplace strategy,” Mr Dransfield said.

Suncorp Lifts OO Mortgage Rates

From Australian Broker.

Suncorp has announced an increase of 0.15% p.a. for its variable interest rates on new and existing owner-occupier loans from 23 January.

The changes apply to the bank’s Back to Basics and Standard Variable products, bringing the rates up to 4.97% p.a. and 5.55% p.a. respectively.

Suncorp has also increased its small business rates by 0.15% p.a. with the Business Essentials rate moving to 5.14% p.a.

The decision to increase rates was a result of balancing the needs of stakeholders, Suncorp banking & wealth CEO David Carter said.

“Increasing competition for quality funding sources, the cost of meeting regulatory change and events overseas that have altered the outlook for interest rates globally, have led to rising funding costs.”

He stressed that the majority of bank funding was dependent on these factors instead of the Reserve Bank of Australia cash rate. Rising costs have been driven by changes in regulation to bring in a stronger banking system, he added.

“While we have been absorbing these increasing costs, it’s evident that the trend is not likely to change. These factors are also impacting the broader industry, with many of our competitors implementing similar rate changes.

“We will also reverse recent reductions to interest rates on our 55 Plus Accounts, resulting in a 0.15% p.a. increase to our middle and top rate tiers. These accounts are typically used by pensioners and self-funded retirees.”

Suncorp-Metway pays $530,000 for breaching consumer credit notification laws

ASIC says Suncorp-Metway Limited (Suncorp) has paid infringement notice penalties totalling $270,000 together with remediation of $260,000 after ASIC found it breached important consumer protection provisions.

Due to an internal error, Suncorp failed to notify a large number of consumers of changes in the amount of their loan repayments and, in some cases, failed to advise the consumers of their first direct debit default. This led to some of the consumers inadvertently defaulting on their loans and being contacted by Suncorp’s collections team.

A lender must notify a consumer of changes to loan repayments (for example, amount or frequency of repayments) no later than 20 days before the change takes effect. Further, where a consumer’s direct debit has failed for the first time, the lender is required to send the consumer a direct debit default notice.

ASIC found that between November 2015 and March 2016, Suncorp:

  • failed  to provide consumers with the required written notice regarding a change in loan repayments; and
  • failed to provide consumers with a direct debit default notice.

As a result of these failures, consumers were not given the opportunity to prepare for a change in their repayment obligations or may not have been aware that their direct debit payment had failed. Subsequently, some consumers were subject to collections activity, including telephone calls or letters from Suncorp’s debt collections staff.

ASIC Deputy Chairman Peter Kell said, ‘Companies engaging in credit activity need to ensure that their systems have rigorous checks and balances, so that when errors occur, they are detected quickly and don’t cause disruption to customers’.

‘A change in repayments can have a significant effect on a consumer’s household budget and consumers need to be given time to prepare for that impact. The law demands that lenders keep their customers informed.’

Suncorp has implemented a $260,000 remediation plan refunding any default fees and any interest customers incurred and has paid some consumers reasonable compensation where appropriate. Suncorp has written to all consumers who were affected by the above failures. Consumers who would like to discuss the matter further can contact Suncorp on 13 11 55.

Suncorp has also agreed to engage an external compliance consultant to review its processes and procedures in relation to the causes of the above breaches. The consultant’s report will be provided to ASIC.

Background

Suncorp provides finance to consumers for a variety of purposes, including home loans and motor vehicle finance.

The matter came to the attention of ASIC in March 2016 when Suncorp voluntarily reported the issue. Since becoming aware of the breaches, Suncorp has implemented new processes to prevent a similar occurrence of non-compliance with these provisions.

ASIC conducted its own investigation into Suncorp’s non-compliance. On 16 December 2016, ASIC issued 20 infringement notices totalling $270,000 for 10 breaches of section 65 (repayment changes) and 10 breaches of section 87 (direct debit default notice) of the National Credit Code.

The payment of an infringement notice is not an admission of guilt in respect of the alleged offence. ASIC can issue an infringement notice where it has reasonable grounds to believe a person or body corporate has committed an offence of strict liability against the National Consumer Credit Protection Act 2009 (Cth).

Suncorp Announces Third Party Role Changes

From Australian Broker.

Suncorp has announced the Head of its Wealth & Life Intermediaries team, Mark Vilo and the Head of its Bank Intermediaries team, Steven Degetto, will swap roles in 2017.

suncorp-pic

The announcement comes five months after Suncorp’s intermediary businesses were brought together under the leadership of Andrew Mair, to take advantage of the size and scale of the collective businesses, and to better serve intermediary partners and their customers.

Mair commented on the the role changes, saying they highlight the great bench strength in Suncorp’s intermediary team and allow it to start working with partners to build resilient and responsive businesses across the spectrum of financial services.

“The new appointments will give our intermediary partners the opportunity to benefit from the diversity offered by Suncorp’s senior leaders,” Mair said.

“Mark has more than 25 years’ of financial services experience and has been integral in the development and implementation of sales, product and marketing strategies across the independent financial advisers’ market.

“I have no doubt he will continue to build on the excellent results Steven has delivered for our banking brokers over the past three years.

“Steven has more than 20 years’ experience in the finance industry with the majority of this based in the intermediary channel.

“He has been instrumental in reshaping the business to deliver quality, sustainable growth and an exceptional proposition for broker partners and their customers, culminating in being named MFAA 2016 non-major lender [of the year].”

Mair said Mark and Steven are both passionate supporters of the value that intermediaries provide for their customers, and will bring that commitment and a fresh perspective to their new roles. “The role changes demonstrate the breadth of talent across Suncorp and the initiative underlines Suncorp’s commitment to being the partner of choice for intermediaries,” he said.

Of his new appointment, Vilo said: “I’m thrilled to be taking on the new role and looking forward to working in a dynamic market that shares similar challenges and opportunities that are being experienced in the independent financial advice market.”

“I’m very proud of the business the team we have created over the past few years. I have made a number of great friends and colleagues in this fantastic industry and I am looking forward to the opportunity to develop my expertise in a different type of intermediary business,” added Degetto.

Vilo and Degetto will start in their respective positions for a period of 12 months, effective 1 January 2017.

Suncorp 1Q Update – The Pressure Continues

Suncorp provided their quarterly statutory update today, as at 30
September 2016. Once again we see the pressure on regional players. Some relief may emerge when they move formally to advanced accreditation with APRA. Risks include a rise in bad debts, and the possibility of higher insurance claims though the summer storm period.

Suncorp’s lending assets remained broadly flat over the quarter at $54.1 billion, as the Bank actively managed volume and margin in a price driven market. Home lending was down 0.7% in the quarter, whilst business lending rose 1.5%. They have a 66% deposit to loan ratio.

Credit quality remained strong with gross non-performing loans decreasing 4.8% over the quarter to $581 million. Impairment losses of $10 million for the quarter represent an annualised 7 basis points of gross loans and advances, below the Bank’s 10 to 20 basis points expected operating range.

sun-q117-1Gross impaired assets increased by $14 million to $220 million during the quarter, representing 0.41% of gross loans and advances. Whilst there is evidence the slowdown in the resource sector has had downstream impacts in some regional centres in Queensland, the impact is limited to a small number of exposures. The increase in the September quarter was driven by one mid-sized Commercial/SME loan with an indirect exposure to the downturn in the Queensland resources sector.

sun-q117-2The balance of past due loans that are not impaired decreased by 10.6% to $361 million as at 30 September 2016. Retail past due loans decreased by $39 million to $319 million over the quarter. The favourable movement follows the embedding of enhancements to the collections system and processes that were disclosed with previous financial results.

Suncorp Banking & Wealth CEO David Carter said the Bank remained committed to driving sustainable growth, while prudently managing risk, liquidity and the funding mix. The Net Stable Funding Ratio (NSFR) was 111% at 30 September.

Modest growth in business lending continued during the quarter, with the commercial portfolio increasing 1.8% to $5.5 billion and agribusiness growing 1.1% to $4.4 billion. They are $480m in development finance across units, townhouses and other residential.

The home lending portfolio contracted marginally to $43.9 billion, as the Bank remained focused on sustainable and profitable lending. Since last year it has grown at 2.3%, well below the ~6.5% system rate.  The quality of the lending portfolio remained favourable across a range of measures including quantitative serviceability parameters, credit quality and loan to value ratio (LVR), with 80% of new loans having a LVR of 80% or less.

sun-q117Consistent with others in the market the Bank saw a sharp increase in term deposit funding costs following the May RBA rate cut. Whilst some of that pressure has recently abated, average funding costs will be higher than originally expected this half.

The capital position of the Bank is robust with a Common Equity Tier 1 (CET1) ratio of 8.92% as at 30 September 2016, at the upper end of the 8.5% to 9% target.

They continue discussions with APRA towards achieving Advanced Accreditation. Meantime, they are operating as an Advanced Bank, with strong risk management and advanced models in use across the business.