The Suncorp Group Ltd (ASX: SUN) share price is down around 1% after the business announced its quarterly banking update.
Suncorp is best known for its insurance operations with brands like AAMI, Bingle, Apia, GIO, Vero, Teri Scheer and Shannons. Suncorp Bank is another part of the business which is expected to be acquired by ANZ Group Holdings Ltd (ASX: ANZ).
Suncorp Bank update
It revealed that its home lending portfolio increased faster than the Australian loan system in the March quarter, seeing an increase of $803 million, or 1.4% (which Suncorp said was 5.8% annualised).
Suncorp said the continued growth was driven by a “positive net refinance rate, improved conversion rate and strong service levels, including turnaround times and continual improvements in customer and broker experiences.”
The ASX financial share said it’s remaining focused on balancing growth and profit margins, while optimising risk-adjusted returns for investors.
Suncorp claimed that its home lending portfolio is high-quality and conservatively positioned, weighted towards owner occupiers, on principal and interest repayment terms and loans with a loan-to-value ratio (LVR) below 80%.
Lending and deposit breakdown
Suncorp revealed business lending grew $69 million, or 0.6% (which Suncorp said was 2.2% annualised). The agribusiness portfolio grew $152 million, supported by seasonal conditions. This was partly offset by a contraction in the commercial real estate portfolio of $83 million, largely because of “heightened external refinances in the beginning of the quarter, and from intense competition in the sector given the low system credit growth.”
Lending growth is generally a good thing for Suncorp shares, as long as arrears aren’t increasing.
The small and medium business portfolio remained “relatively flat, reflect lower new business volumes”.
Suncorp Bank grew its retail term deposits by an annualised rate of 34.8% and the savings account balances increased by an annualised 3.9%.
Household deposits saw a period of “intense competition” as customers became “increasingly responsive to higher interest products”.
The net impairment expense was just $1 million for the quarter, reflecting a “benign credit experience, minimal write-offs and an unchanged collective provision.”
Arrears are rising
Despite that positive commentary, the total of loans past due by at least 90 days increased by $85 million to $510 million, which was up 11 basis points (0.11%) of gross loans and advances from the previous quarter.
The increase was mainly drive by a $54 million increase in the home lending portfolio and a $31 million increase across all business lending portfolios.
The amount of retail loans past due, excluding 90+ days overdue, increased to $375 million at March 2024, up from $321 million at December 2023 and $260 million at March 2023. That’s a year on year increase of 44.2%.
It seems the situation is steadily worsening for Suncorp’s loan book, which isn’t helpful for Suncorp shares.
