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Highlights
- Pepper Money (ASX:PPM) reports a 27% surge in new home loans, reaching a $10.2 billion mortgage book.
- Net interest margin for mortgages expands by 8 basis points, while asset finance segment faces challenges.
- Annual net profit declines by 10%, yet results surpass market expectations.
Pepper Money (ASX:PPM) has demonstrated robust growth in the mortgage market, with a 27% increase in new home loans during the second half of the last calendar year. This expansion propelled its total mortgage book to $10.2 billion, reflecting strong demand despite the highly competitive lending environment.
The company managed to achieve both higher loan volumes and improved returns, distinguishing itself from Bendigo and Adelaide Bank (ASX:BEN) and Resimac (ASX:RMC). Both of these lenders recently reported a squeeze on margins due to aggressive pricing and competitive market conditions.
Expanding Margins Despite Market Pressure
A key highlight from Pepper’s performance was an 8 basis point expansion in its net interest margin for mortgages, which reached 1.65%. This improvement came alongside a reduction in mortgage loan loss expenses and the release of some provisions, indicating strong risk management and operational efficiency.
In contrast, Bendigo and Adelaide Bank (ASX:BEN) recently disclosed a margin contraction, reflecting the impact of increased competition. Similarly, Resimac (ASX:RMC) also reported tighter margins as it focused on growing its loan portfolio.
Challenges in Asset Finance Segment
Despite the strong mortgage performance, Pepper’s overall net profit for the year stood at $98.2 million, marking a 10% decline. The primary reason for this drop was challenges in its asset finance division, where loan losses increased. Late-stage arrears and rising insolvencies contributed to these losses, highlighting the broader economic pressures affecting the non-bank lending sector.
However, the asset finance margin expanded, suggesting that the company is taking steps to stabilize profitability within this segment.
Dividends and Market Response
Despite the dip in net profit, Pepper’s overall financial performance exceeded market expectations. The company announced a fully-franked dividend of 12.1 cents per share, rewarding shareholders even amid some headwinds in the asset finance division.
With its strong mortgage growth and strategic adjustments in asset finance, Pepper remains a key player in the non-bank lending space. As competition in the sector continues to intensify, its ability to sustain margin expansion and manage risk effectively will be crucial for future performance.
