Today Australian Finance Group Ltd (ASX: AFG) released its half-year results to the market for the period ending 31 December 2018 with a net profit after tax (NPAT) of $16.69 million. The market reacted favourably sending its share price up as much 7.2% to $1.265 in early trading.

Australian Finance Group was established in 1994 and is now one of Australia’s largest mortgage broking groups.

Key Results

Australian Finance Group reported:

  • Residential settlements of $17.2 billion
  • AFG Home Loans settlements of $1.73 billion
  • Commercial settlements of $1.27 billion
  • Combined residential and commercial loan book of $151.8 billion
  • Securities loan book of $1.66 billion
  • Cash profit up 2.2% to $14.72 million
  • NPAT unchanged at $16.69 million.

Management Commentary

CEO David Bailey said, “We continue to build a strong, sustainable business despite challenging market conditions. AFG is delivering a diversified earnings stream, complementing our core residential and commercial aggregation business with AFG Home Loans, AFG Business and AFG Commercial powered by Thinktank.”

Royal Commission

AFG addressed the elephant in the room within the mortgage broking industry, acknowledging the regulatory uncertainty from the recommendations laid out in the Royal Commission. However, the group was optimistic, saying that there “have been encouraging signs that the Government and regulators recognise the value brokers deliver in lowering borrowing costs and broadening the choice for consumers”.

Mr Bailey said the group is “engaging extensively and positively with policymakers and will ensure our sector is represented in this process. While our commitment to delivering shareholder value will underpin our response to any regulatory changes emerging from the Royal Commission, the basic tenet is that preserving competition in Australia’s home loan market is good for AFG shareholders and Australian consumers”.

Future Outlook

Obviously, the possible regulatory changes that could impact the Australian Finance Group are huge. While they have taken steps to diversify their earnings stream, most loans written are in the residential market. A regulatory change which introduces a fee for service model could see their future loans pipeline dry up almost overnight.

Rask Perspective

I struggle to see or understand how mortgage brokers provide cheaper home loans or competition to the market, being a middle party in a transaction which sees them paid an upfront commission and a trailing commission over the life of the loan. While these costs are paid by the bank, they are surely factored into the interest rate and passed onto the consumer. Removing commissions would allow the savings to be passed onto the consumer, who then instead pay via a fee for service model.

It is for this reason I see the message as largely self-serving rhetoric and if a rational decision was to be made, then a fee for service model would be introduced. However, lobbying policymakers is not always a rational game.


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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).