Suncorp Bank. Debt Investor Presentation. Suncorp Group Limited. November 2015

Transcription

1 Suncorp Bank Debt Investor Presentation 1

2 Suncorp Investor Update Agenda Suncorp Group Group Financial Results & Capital Suncorp Bank APS330 Funding & Liquidity Australian Mortgages

3 Suncorp Group Leading financial services brands in Australia and New Zealand Top 15 ASX listed company $16.8 billion market capitalisation* as at 18 November, 2015 $94 billion in group assets 14,500 employees in Australia and New Zealand 9 million customers Issuer Credit Ratings of A+ / A1 / A+ with S&P / Moody s / Fitch respectively *Source: Bloomberg 3

4 Group Capital Structure Ordinary dividend 60-80% of cash earnings Distributable earnings Maintain capital targets Shareholders Surplus assets Suncorp Group Surplus returned to shareholders GI Life Bank General Insurance Life Bank (Suncorp Metway Ltd) Suncorp Metway Ltd is the entity that issues senior debt instruments on behalf of the Bank General Insurance is the entity that issues sub-debt instruments on behalf of AAI Limited and SIF Limited is typically the entity that issues Basel III compliant CPS 4

5 Group Financial Results and Capital 5

6 Result overview ($m) (June 2015) FY15 FY14 % General Insurance NPAT 756 1,010 (25.1) Bank NPAT Suncorp Life NPAT Business lines NPAT 1,235 1,330 (7.1) Other (44) (26) 69.2 Cash earnings 1,191 1,304 (8.7) Life Insurance write-down - (496) n/a Other profit and acquisition amortisation (58) (78) (25.6) NPAT 1,

7 Suncorp Group business line NPAT ($m) (June 2015) Profit diversification FY12 FY13 FY14 FY ,330 1, (263) (632) (60) General Insurance Life underlying NPAT Life market adjustments Bank Non-core Bank 7

8 General Insurance (June 2015) $m FY15 %Δ General Insurance profit after tax 756 (25.1) Underlying ITR of 14.7% exceeding commitment to meet or beat 12% Reported ITR of 11.4% Reserve releases of $427 million Natural hazards $473 million above allowance GWP up 0.1% with positive unit growth in Personal lines GI CET1 1.40x PCA 8

9 A diversified insurance portfolio Geographic diversification Market Share Diversified by industry class Gross Written Premium by Geography VIC 21% WA 8% Other 9% Home and Motor Insurance Australia - 28% Commercial Insurance Australia - 17% Gross Written Premium by Product Commercial 24% CTP 15% NSW 32% QLD 30% Compulsory Third Party QLD - 50% Compulsory Third Party NSW - 27% Home 28% Motor 33% 9

10 Distribution trusted brands Differentiated offerings, preserving core elements of each brand Lead national brand: Relieve stress Competitive price positions Personal Insurance market share in each State (1) NT 11% Suncorp Insurance: The must-have Queensland insurance Strong community connections WA 15% Qld 34% State based brand in NSW and VIC: Providing certainty Service excellence and more comprehensive cover (1) Roy Morgan market shares (Jul 2015) SA 15% NSW 29% Vic 32% TAS 36% National life stage brand: Rewarding over 50s Showing understanding Delivering service excellence 10

11 Suncorp Life (June 2015) $m FY15 %Δ Underlying profit after tax Market adjustment after tax Life profit after tax Individual in-force premiums up 5.6% Claims experience $8 million favourable Lapse experience $7 million favourable Super new business up 23.4% driven by WealthSmart and Everyday Super Strong growth in Direct sales via insurance brands 11

12 Suncorp Bank (June 2015) $m FY15 %Δ Bank profit after tax NIM improved to 1.85% Bank CET1 increased to 9.15% Cost to income ratio down to 53.4% Deposit to loan ratio 65.3% Home lending up 7.1% Business lending down 7.3% Non performing loans down 20.1% Gross impaired assets down 34.5% 12 August 2015

13 Suncorp Net Interest Margin Movements (June 2015) 0.05% (0.01%) (0.01%) 1.85% 1.72% (0.11%) 0.21% 2014 Bank NIM Lending Mix / Spreads Retail Funding Mix / Spreads Wholesale Funding Mix/Spreads Balance sheet management Earnings on Invested Capital 2015 Bank NIM 13

14 Suncorp capital (June 2015) $570m excess CET1 on a post-dividend basis $m General Insurance Bank Life NOHC and other entities Suncorp Group total CET1 3,069 2, ,629 CET1 target 2,298 2, ,416 Excess (pre-div) ,213 Dividend (643) Excess (post-div) 570 CET1 coverage ratio (pre-div) 1.40x 9.13% 1.77x CET1 targets 1.05x 8.75% Amount equal to sum of PCA plus a target excess 14

15 Aps330 Capital (Sept 2015) Strong capital position Capital (CET1 ratio) CET1 position relative to peers 9.13% 8.70% 8.81% 8.82% 8.86% 8.86% 8.17% 8.91% 9.20% 9.10% 9.00% 9.94% 8.53% 8.22% Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Note: The Bank s CET1 ratio decreased from Jun-15 to Sep-15 following the declaration of the Suncorp Group dividend in August. SUN Regional 1 Regional 2 Major 1* Major 2 Major 3 Major 4 CET1 source: regulatory CET1 per latest company disclosures. Majors as at Jun-15, Regional 1 as at Aug-15 and Regional 2 as at May-15. Major 1 is a pro-forma ratio post capital raising. 15

16 Suncorp market shares Growth opportunities Incremental growth opportunities in markets where we are a leading player Home and Motor Insurance 29% QLD CTP 51% Growth opportunities from entering new markets and expanding in existing markets OUR HOW CI Aust 16% CI NZ 25% PI NZ # 24% CTP NSW 21% Potential to grow to natural market share in targeted segments Suncorp Bank^ 3% Suncorp Life` 5% 16 #Vero and AAI ^Residential mortgages `In-force individual risk premiums Australia.

17 Customer A strengthened customer franchise Strong outcomes across the Group Industry leading customer satisfaction Industry leading satisfaction in key business lines 4 of the top 5 most advocated national insurance brands Improved retention Industry average Jun 14 Jun Deeper relationships Attracting new customers Motor Home Bank 17

18 Optimised Platform Unlocking the value of our 9 million customers Connected customers Simplified systems BANK LIFE GENERAL INSURANCE CORPORATE Underpinned by Business Intelligence DATA LAKE SUNCORP DATA SERVICES Sitting within a secure and scalable cloud CLOUD ENVIRONMENT Supported by a unique way of working SERVICE CULTURE INNOVATION RELENTLESS EXECUTION AGILE/ LEAN PARTNERING 18

19 Suncorp Bank APS330 Sept 2015 Update 19

20 Suncorp Bank (Sept 2015) Australia s leading regional bank Home lending up 2.9% Business lending down 1.7% Bank CET1 8.86% comfortably within the 8.50%-9.00% target range Non performing loans down 7.8% Gross impaired assets down 7.3% Western Australia 12 branches 1 business centre South Australia 1 branch 1 business centre Queensland 124 branches 7 agencies 12 business centres Victoria 9 branches 2 business centres ACT 2 branches Tasmania 1 branch Total customer base of 1,059,000 Network of 200+ branches & business centres Award-winning Mobile Banking App New South Wales 41 branches 3 business centres Branch, Business Centres as at Sep Customer figures at Dec Mobile Banking App won the QLD iaward, June

21 Suncorp Bank lending portfolio (Sept 2015) Conservative approach to growth Lending assets $53 billion 73% business lending exposures <$10m $25-$50m 7% Housing 81% (up 2.9%) Comm/SME 10% (down 1.4%) Agri 8% (down 2.0%) Consumer 1% (down 3.9%) $10-$25m 20% $5-$10m 18% < $5m 55% 21 21

22 Suncorp Bank lending portfolio (Sept 2015) Now significantly de-risked with 80% mortgage portfolio Jun 2009 Lending portfolio ($54.4 bn) Summary Sep 2015 Lending portfolio ($53 bn) Portfolio Metrics Jun 2009 Sept 2015 Housing 52% Com/ SME 10% Agri 6% Corporate & Property 30% Housing 81% (up 2.9%) Comm/ SME 10% (down 1.4%) Agri 8% (down 2.0%) Consumer 1% (down 3.9%) Exposures over $50m Impaired assets Impairment losses $1,474m $202m $710m $6m 22

23 Mortgage portfolio (Sept 2015) Loan Type Investor 30.9% 24.2% Owner Occupier 69.1% 14.1% Geography 27.3% VIC/SA /Other 13% NSW/ ACT 28% WA 8% LVR Distribution 11.3% QLD 51% Interest Type 12.0% Variable 80.2% 9.6% Fixed 19.8% 1.5% Retail FY14 HY15 Sep15 Owner Occupier 69.5% 68.9% 69.1% Investor 30.5% 31.1% 30.9% Interest Only 22.1% 23.7% 24.4% Low Doc 3.2% 2.7% 2.0% Direct 40.3% 39.4% 36.5% Broker 59.7% 60.6% 63.5% Mortgage Insured 47.8% 44.7% 38.4% Not Mortgage Insured 52.2% 55.3% 61.6% Fixed 20.9% 20.8% 19.8% Variable 79.1% 79.2% 80.2% Average Loan size $218,488 $219,800 $224,536 LVR Group (0.00% - 80%) 59.2% 61.7% 65.6% LVR Group (80.01% - 90%) 24.0% 24.8% 23.3% LVR Group (90.01% and above) 16.7% 13.5% 11.0% 90 days+ past due 0.93% 0.78% 0.67% Impairment losses to Gross Loans 0.06% 0.06% 0.06% Specific Provisions 0.01% 0.01% 0.01% Loss Rate 0.004% 0.001% 0.001% 0-60% % % % % % 95%+ 23

24 Housing loans New Originations (Sept 2015) Improved LVR mix Continued improvement in quality of new home lending Significant improvement in risk grades at origination Portfolio LVR mix continues to shift toward sub-80% lending New mortgage originations by LVR <80% 80.01% - 90% 90.01% + 4% 3% 5% 2% 13% 7% 25% 21% 13% 11% 8% 12% 8% 15% 10% 8% 67% 69% 72% 80% 86% 89% 83% 89% Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 24

25 Credit quality (Sept 2015) Impaired and non-performing loans both down significantly Realising benefits from improved lending asset quality underpinned by enhanced risk management capability Gross impaired loans by segment ($m) Retail lending Agribusiness lending Commercial/SME lending Past due home loans (% gross home loans) Total home lending Past due non-hardship Home lending impaired HL Loss Rate % 0.98% 1.03% 0.93% 0.81% 0.74% 0.77% 0.78% 0.67% % Sep-14 Dec-14 Mar-15 Jun-15 Sep % 0.01% Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 25

26 APS 330 Credit quality (Sept 2015) Impairments Impairment losses of $6 million demonstrates Suncorp Bank s focus on risk management and improved credit quality. Impairment losses to gross loans Net impaired loans to gross loans 0.38% 0.13% 0.18% 0.17% 0.15% 0.14% 0.11% SUN s target range 10-20bps 0.26% 0.27% 0.28% 0.28% 0.29% 0.18% 0.04% SUN Regional 1 Regional 2 Major 1 Major 2 Major 3 Major 4 SUN Regional 1 Regional 2 Major 1 Major 2 Major 3 Major 4 Source: Latest peer financial reports 26

27 Risk Position (Sept 2015) Commercial (SME) asset growth and credit quality Portfolio contracted 1.4% to $5.3 billion Credit quality is within risk tolerances with impaired assets declining 12.7% The Bank continues to write low-risk, well secured business lending within its target market The portfolio is heavily weighted towards less than $5 million lending, with 99% of customer groups within this range. By value, more than 55% of the portfolio consists of customer groups with an average exposure of less than $5 million. 5, % Commercial (SME) ($m) 5,472 5,531 5, % 0.88% 0.88% 5, % 5,746 5, % 5,576 5,593 5,447 5,353 5,278 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14* Mar-15* Jun-15* Sept-15* 0.88% 0.86% 1.20% 1.16% 1.16% Commercial portfolio ($m) Impaired assets/total portfolio (%) Note: From Dec-14 the remainder of the Bank s Non-core Portfolio was included in the Commercial/SME portfolio. 1.05% 27

28 Risk Position (Sept 2015) Agribusiness asset growth and credit quality Portfolio contracted 2.0% to $4.3 billion Credit quality is within risk tolerances with impaired assets declining 21.2% The Bank continues to exercise care and caution with its approach to risk selection in the agribusiness sector The portfolio is heavily weighted towards less than $5 million lending, with 93% of customer groups within this range. 4, % 4, % 4, % 4, % Agribusiness 4, % 4, % 4,624 4,575 4,534 4,498 4,400 4,312 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Agribusiness portfolio ($m) Gross impaired assets/total portfolio (%) 4.50% 3.56% 3.58% 3.36% 2.83% 2.75% 28

29 Funding & Liquidity 29

30 Long Term Funding Profile ($m) 1,200 Covered Senior Unsecured (Domestic) Senior Unsecured (Offshore) 1, Dec 15 Jan 16 Mar 16 Apr 16 May 16 Aug-16 Sep 16 Dec 16 Feb-17 Mar 17 Apr 17 Oct 17 Nov 17 Dec 17 Apr 19 Aug 19 Nov 19 Apr 20 Oct-20 30

31 Funding and Liquidity Diverse access to funding markets Strong Bank issuer credit rating of A+ / A1 / A+ creates genuine competitive advantage to other regional banks Deposit to loan ratio Modest term funding requirements for FY15/16 The bank continues to look for strategic opportunities to lengthen and diversify term funding from established, well recognised domestic and offshore programmes o o o Short Term Wholesale supported by strong domestic fund appetite with diversity into offshore CP markets During FY15 the Bank executed RMBS, covered bond and senior unsecured transactions in the A$, GBP and USD markets. Suncorp Bank has historically issued in A$, US$, EUR, GBP, JPY & Asian currencies with all funds swapped into A$ Issue Date Amount Tenor Covered Bond Oct 2014 A$950m 5yr FRN/5yr Fixed Nov 2012 A$600m 5yr Fixed Jun 2012 A$1.1bn 4.5yr Fixed Senior Unsecured (Benchmark) Oct 2015 A$750m 5yr FRN/Fixed Apr 2015 US$600m 5yr Fixed Sep 2014 GBP250m 3yr FRN Apr 2014 A$750m 5yr FRN Mar 2014 US$850 3yr FRN/Fixed Apr 2013 A$750m 3yr FRN Private Placements Nov 2015 Outstandings US$290m Offshore Private Placements Nov 2015 Outstandings A$1.38bn Domestic Private Placements RMBS Mar 2015 A$1.25bn 4yrs weighted average May 2013 A$1.15bn 4yrs weighted average 31

32 Diversification of Funding Profile Suncorp Bank s Funding profile has diversified to include multi-currency and longer tenor issuance. Suncorp Bank has access to a wide range of wholesale funding markets with a proven ability to execute transactions. Asset Class Sub Debt, $742, 6% Currency Class GBP & EUR, 4% Remaining Tenor 26% 23% 26% RMBS, $3,366, 26% Domestic, $3,630, 28% USD, 15% 15% 10% Covered, $2,650, 21% Offshore, $2,462, 19% AUD, 81% 1yr 2yr 3yr 4yr 5yr and over 32 * Charts do not include Preference Shares

33 Liquid Assets transitioned to LCR (June 2015) Components of Liquid Assets ($bn) Components of LCR ($bn) Cash, Govt, Semi-govt Bank, NCD, Bills, RMBS, Supra, Covered Bonds Internal RMBS HQLA assets CLF Required LCR qualifying liquid assets Buffer 119% LCR 118% LCR % LCR 100% LCR Jan-00 Jun Jan-00 Dec Jan-00 Jun Jan-00 Dec Jan-00 Jun Dec Jun 155 The Bank s transition to Basel III APS210 Liquidity standards has changed the composition of the Bank s liquid assets. The median LCR since implementation from 1 January to 30 June 2015 was 120%. The LCR at 30 June 2015 was 118%. 33 LCR defined as Liquidity Coverage Ratio. CLF defined as Committed Liquidity Facility

34 Australian Mortgages 34

35 Suncorp Bank mortgage portfolio Home loan underwriting process Suncorp has a custom built origination system called Sunloans This system has an automated decision engine model (scorecard) which reflects the Bank s risk strategy and underwriting criteria Underwriting that is not approved via the scorecard is completed by accredited Suncorp staff under a Delegated Credit Authority approved by the Chief Risk Officer * Aggregators/ Brokers have no approval authority Post approval, audits are performed regularly by the hindsight review team and QBE LMI for LMI loans Customer 37% 63% SUNCORP CENTRES 211 offices nationwide 14 in-branch lenders 58% 31% 11% Automated Credit Scoring Model Sunloans Approved Referred Declined Suncorp Central Processing Area AGGREGATORS 22 nationwide Delegated Credit Authority DCA 65% 11% Referred Approved Declined Approved * All percentages as at September * Delegated by the Chief Risk Officer to Executive Manager Credit Oversight and Assurance for Delegated Credit Authority below Banking Credit.

36 Suncorp Bank mortgage portfolio Underwriting criteria & valuation requirements Underwriting Criteria Valuation Requirements Overview: Underwriting criteria is built into Suncorp s automated Credit Scoring Model Credit Bureau reports required for all borrowers. Where report is not satisfactory, loan is referred via the scorecard to a higher approval authority for decision Delegated Credit Authorities are held in the Banking Credit team and selected Lending Staff who are achieving benchmark results in Compliance Serviceability: Customer serviceability determined via an assessment of affordability using the greater of the floor rate (5 year BBSW average for the previous quarter + 3% buffer + an overlay of 156bps) or the actual Customer product rate + 2% Confirmation and stability of employment investigated and appropriate income details required To verify loan affordability, Minimum Household Living Expenses are adopted if they are higher than the customer s actual living expenses. These allowances are updated quarterly and align with recognised indices Acceptable loan security: Parameters establish acceptable security types, acceptable geographic locations, maximum LVR and maximum loan amounts for particular locations For fully verified loans, maximum LVR (inclusive of LMI fee) is capped at 95% LVR All loans are supported by registered 1st mortgage with full recourse to the borrower Overview: All valuations are undertaken by Accredited Panel Valuers appointed by Suncorp Suncorp utilises approx. 120 valuers nationwide Independent valuations undertaken for approx. 85% of loans on Suncorp s balance sheet Valuations are required: Loans with LVR > 70% (subject to the purpose & loan amount) For metro properties if loan amount > $500,000 ** For non metro properties if loan amount > $300,000 ** Suncorp valuations are processed via the valuation management system (VMS), which is a fully automated system supplied by Core Logic that links the Bank to the Valuation firms the selection of a valuer is random and controlled by the system. Credit Policy and valuation rules are applied via the valuation decision maker (VDM), which determines the type of valuation to be used for a particular scenario. Lenders / Banking Credit can override the system and request a full valuation. ** If the LVR is <= 80% and the loan amount is < $1M, a valuation may not be required if the contract of sale is acceptable and the Bank can validate same** Panel valuers are individually accredited based on: Industry qualifications Current professional development certificates Minimum $1m professional indemnity insurance cover Approval by Suncorp Banking Credit and LMI sign off 36

37 Suncorp Bank mortgage portfolio Mortgage brokers Broker Accreditation Requirements Overview of Mortgage Brokers Formal accreditation process: Must have ASIC issued Australian Credit License or be appointed as a Credit Representative by a license holder be a member of an approved Aggregator group Must be a member of the Mortgage and Finance Association of Australia or Finance Brokers Association of Australia (MFAA or FBAA) Cannot be registered without full industry accreditation (e.g. National Consumer Credit Protection (NCCP) training) Ongoing training requirements also need to be achieved Experience and training (administered by Aggregators): Must have a minimum of 2 years industry experience Must be a member of the Mortgage and Finance Association of Australia or Finance Brokers Association of Australia (MFAA or FBAA) and be personally identified (e.g. 100-point check) Have a Certificate IV in Mortgage Lending Subject to clear Australian Federal Police checks Must hold Professional Indemnity Insurance Broker responsibilities: Act as intermediaries between the borrower and Suncorp in the initial phase of mortgage origination Act solely as originators of loan applications and have no authority to perform any part of the loan assessment, approval or servicing Validation of employment and income data conducted by Suncorp staff An annual review process is performed by Channel Management on Aggregator relationships and includes: The quality/quantity of mortgage applications Percentage of Suncorp business and arrears Portfolio trends compared to industry averages Changes in ownership Fraudulent and suspicious activity 37

38 Suncorp Bank mortgage portfolio Comprehensive arrears management Customer Contact Strategy (Collections) Mitigation Strategy (Recoveries) Day 1 Day 60 Day 60 Day Days Legal Process and Asset Realisation (Repossessions) System generated arrears notice sent on Day 7 After Day 7 continuous contact via predictive dialler Aim to elicit Promise to Pay 14 full-time Officers dedicated to covering outbound calls 5 full-time Officers dedicated to covering inbound calls Default Notice / Notice to Exercise Power of Sale 30 days Staff target contacts per person per day Customer transferred to Late Collections Team (5 staff) Notice to Quit issued Strict adherence to NCC Guidelines Approval of Hardship Cases on application basis QBE LMI send arrears report at 60 days Lodge Statement of Claim with Supreme Court File Writ of Possession Judgement and execute warrant for vacant possession Obtain valuation, recommend real estate agent and complete any capital works as required Repossessions Team focus on loss mitigation strategy (5 staff) Auction and sale of property LMI claim made for any shortfall 38

39 Investor Reporting For further information on Treasury Funding please go to Contacts Simon Lewis Adam Parry Katie Taylor-Groth Executive Manager Funding Institutional Relationship Manager Institutional Relationship Manager

40 Important disclaimer This presentation contains general information which is current as at 18 th. It is information given in summary form and does not purport to be complete. All amounts are in Australian dollars unless otherwise stated. It is not a recommendation or advice in relation to Suncorp or any product or service offered by Suncorp or any of its subsidiaries. It is not intended to be relied upon as advice to investors or potential investors, and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice, when deciding if an investment is appropriate. This report should be read in conjunction with all other information concerning Suncorp filed with the Australian Securities Exchange (ASX). The information in this report is for general information only. To the extent that the information may constitute forward-looking statements, the information reflects Suncorp s intent, belief or current expectations with respect to its business and operations, market conditions, results of operations and financial condition, capital adequacy, specific provisions and risk management practices at the date of this report. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties, many of which are beyond Suncorp s control, which may cause actual results to differ materially from those expressed or implied. Suncorp undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this report (subject to ASX stock exchange disclosure requirements). 40