Launceston-based Bank of Us this week reported a 15 per cent slide in net earnings for the year to June 30, to $5.1 million - a result that chief executive officer Paul Ranson said was related to a "normalisation" of business after an abnormally profitable period throughout the heights of COVID.
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The bank reported revenues of $32.5 million, down slightly from the 2021 financial year, and a $2 million jump in expenses, to $22.3 million.
Mr Ranson said the profit slide was partly due to a narrowing of the margin between what it pays to depositors and bond holders, and what it earns from borrowers.
"We had a great year the year before because COVID reduced a lot of our funding costs," he said, pointing out that people saved more during the pandemic due to lack of holidays and eating out.
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"We tap the markets for funding as well, and the rates we had to pay to secure that funding was lower because of all the additional cash sloshing around," he said.
"But in the year just finished, there was a normalisation, and we started having to pay more for our funds."
Other factors in the net profit result included higher investment costs and stiffer competition.
"The competition on the market for refinancing - of getting customers to move home loans from one bank to another bank - it ate away a bit at our margins, that was one of the key things," he said.
The result came as the customer-owned bank marked five years since its rebranding under the Bank of Us name.
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Mr Ranson was thrilled at the growth since then - he said the loan book had doubled in the five-year period, to $1.1 billion, and he estimated that Bank of Us has a 10 per cent share of the Tasmanian market.
While fast, the bank's growth has been slower than ASX-listed competitor MyState Limited, where an aggressive interstate expansion means that its mainland business now dwarfs its home state business.
Mr Ranson said he was happy to pursue a different path than MyState.
"We don't have to have the same strategy as MyState to be successful. Our strategy is ... providing value within Tasmania, which is our market, and we could go interstate, but we also think there are plenty of opportunities to grow in Tasmania."
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He said partnership opportunities were a key area of growth for the bank, including its relationship with various mortgage brokers, Wilson Homes and the state government via the MyHome shared equity scheme.
He said these opportunities "give us access to parts of the market that other [banks] won't have access to."
The bank's business will take a hit from lower demand for loans stemming from recent rate hikes, but he didn't expect big changes to property values or the demand for mortgages over the long term.
"As the interest rate increases, that is moderating [the market] further. So we are starting to see a slowdown in the property market, and there's less demand for lending now," he said.
There was also no indication of a deterioration in credit quality yet, he said.
"Anybody who's had a loan for a few years is in a good position - most people have been paying more than they needed to and they are in advance of their payments," he said.
"Our point of concern is people who borrowed more recently and are more highly leveraged - that is one market we will be watching more closely to identify early warning signs."
For now, he said there are no more plans to expand the bank's network of seven branches - or stores, as he called them.
"We are pretty settled on our store network - most of growth in distribution requirements sits in digital space - a lot of our investment has gone into enhancing the digital space, our mobile app, the website, the digital channels," he said.
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