Home Lending Drives Bom Higher

Bank of Melbourne has shrugged off the intense competition in the home lending market to report a 17.1 per cent increase in annual net profit to $84.1 million.

The bank's managing director, Mr David Airey, said the result for the year to June was "outstanding", with almost every key performance indicator showing improvement on last year.

BoM declared a fully-franked final dividend of 24c, up 1c from last year, taking the annual payout to 47c, a 5c increase. The market liked the result, marking up BoM's shares 13c to $7.95.

Underlying profit, which excludes taxation, abnormal items and bad debts expense, improved 12 per cent to $154.5 million.

BoM returned 17.5 per cent on average shareholders' funds, up from 16.9 per cent last year.

The profit was underpinned by $2.5 billion in new lending, up 21.5 per cent for the year, close to 55 per cent of which was achieved in the second half.

Mr Airey said competition in the Victorian home lending market was intense but, contrary to popular opinion, banks rather than mortgage originators were the ones applying the pressure.

Bad debts expense was 66 per cent lower at $10.76 million, but Mr Airey said he was confident the bank's asset quality could be maintained.

"The key will be the quality of commercial banking assets we write over the next ... five years," he said.

The bank's commercial lending portfolio grew by $191 million, with assets in the sector now topping $1 billion and making up 13 per cent of loans.

BoM's interstate operation, comprising single branches in Sydney, Brisbane, Adelaide and Perth, was now writing 32 per cent of new business.

BoM achieved a cost-toincome ratio of 51.7 per cent, down from 52 per cent last year, the best performance of any Australian bank.

Mr Airey said there was still scope for further cost efficiencies in the next two years.

The bank's acquisition of the Challenge Bank's Victorian assets from Westpac was going ahead according to schedule, with the formal transfer due on October 1.

BoM has been managing the assets since May, with deposits "steady" and lending approvals up by about 20 per cent.

The bank had assets of $9.2 billion at balance date, with a further $1.3 billion accruing once the Challenge deal is completed.

Tier-one capital was 11.5 per cent of risk-weighted assets, but will reduce to 8.7 per cent post-Challenge.