SBS home loans, redeemable share dividends, jump as profits fall

The Invercargil-based bank is also touting providing 1,449 first-home buyers with home loans, up from 850 the previous year, and a 12% jump in home lending overall, at a time when bank mortgages rose about 3.5%, as highlights of its latest year.

SBS reported a net profit of $38.2 million for the year ended March 31, down from $44.9 million the previous year.

A large part of the decline reflected dividends – effectively fixed-interest payments – jumping to $98.3 million from $37.4 million the previous year.

The redeemable shareholders are effectively SBS’s owners and the value of them jumped nearly 23% to almost $4.1 billion over the year.

Interest rates generally have risen during SBS’s financial year with the Reserve Bank raising its official cash rate (OCR) from 1% in February last year to 4.75% in February this year – since March 31, the OCR has gone to 5.5%.

SBS also lifted charges for bad debts to $12.7 million from almost $6 million the previous year.

No loan deterioration

Chief executive Mark McLean said the increased bad debt charges reflect the current economic climate, although the bank had written back some of the covid provisions last year, so the increase in charges wasn’t as pronounced as it looks.

“We’re not seeing any signs of deterioration coming through in our portfolios … we are having probably more conversations with our customers around their debt structure,” he said.

Helping SBS be considerably more flexible than it otherwise could be is that between 60% and 70% of customers have made repayments ahead of their original loan terms – many customers maintained their payments when interest rates were falling.

The increased lending to first-home buyers “is an outstanding achievement in a period that has presented many challenges for New Zealanders,” McLean said.

“This year, we demonstrated we offer the best products, services and rates to our investment members too, particularly with market-leading term deposit rates,” he said.

“We were determined to be responsive and moved as the first bank to offer a 4% 12-month term deposit special in June 2022 and we continued to lead the market all the way to 6% in January 2023.”

Jump in high LVR lending

SBS’s disclosure statements show its second half was considerably stronger than the first half, with the decline in profit slowing to 3.3%.

Its total mortgage growth was more than $434 million compared with $349.4 million the previous year, taking its mortgage book to $4.05 billion – SBS’s total lending was up $624 million, or 14%, to $5.03 billion.

McLean noted that SBS’s own First-Home Combo offer had been judged by Canstar to be the best in the market.

The biggest growth was in mortgages with loan-to-valuation ratios (LVRs) above 80% up to 90%. Lending in this category jumped to $444.8 million from $364.1 million with $72.5 million of the $80.7 million growth occurring in the second half.

Of these loans, 82% are first-home loans and fully insured by the Kainga Ora – Homes and Communities scheme and are exempt from the Reserve Bank’s LVR restrictions.

Loans with LVR’s above 90%, of which 90% are insured by Kainga Ora, also jumped to $148.6 million from $84.4 million a year earlier.