Good Afternoon. Miko here! This is the second edition of Bada Embankment, and I would like to thank you for your continued support.

Today, we have some significant news to share. Firstly, the interest rate on term deposits has been reduced. Secondly, we will be releasing the financial results of some of the major banks.

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Today’s reading time is 6 minutes. - Miko Santos

👇 Santos Unfiltered is a podcast that uses the best journalism to find the answers to the biggest questions.

🛎️ AFTER THE BELL

Data is provided by Market Index AU. Stock data as of market close

🥝 SUNCORP
Suncorp Group Limited Reports Increased Earnings Amid Challenges

Suncorp Group Limited announced an increase in earnings due to improved underlying margins, positive investment returns, and natural hazards costs below allowances.

The Details:

• Cash earnings were up about 16% to $1,372 million from $1,177 million while NPAT increased around 12% to $1,197 million from $1,071 million. On July 31, ANZ acquired the Bank which contributed to $379 million NPAT from $470 million.

• In general insurance, GWP increased by 13.9%, due to unit growth and prices that have been increased by planned raises in reinsurance costs, natural hazards, and claims inflation.

• The general insurance business profitability grew to 12.0% in the second half of 2024, while for the full year, it rose from 10.6% to 11.1% in line with targeted cost management strategies and successful pricing adjustments that management had taken against certain market-related challenges. Net investment income of $661 million increased due to a strong underlying yield on the interest-earning portfolio and stronger equity markets.

• The total cost of natural hazard events was $1,235 million, which was $125 million below the group's budgeted allowance, highlighting Suncorp's ability to manage these costs through disciplined risk underwriting and proactive mitigation. Separate weather events in Australia totaled 12, and one in New Zealand, were efficiently managed by the Group response measures through rapid activation and leveraging the resources of the CRP to reduce losses and provide support where needed.

• The total net reserves for the year were strengthened by $124 million, with third-party claims paid out below the reserve release assumption of 0.7 percent, impacted by broad-based superimposed inflation in Queensland, which required prudent management of reserves and claims assessment.

Why it matters:

Suncorp's resilience and strategic decision-making helped the company get through the tough market conditions and sell its bank. Its resilience and rebound in earnings place Suncorp well to benefit from insurance industry growth.

Bottom Line :

Suncorp has adapted challenges and rebounded in earnings, proving their strength toward the insurance industry. This will benefit them toward success and increased market share in the future.

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🏆 BIG FOUR

Big banks are cutting term deposit interest rates in anticipation of the Reserve Bank pull-back. The reason is steep competition, hurting profit margins but delighting savers.

The Revelations:

• The Commonwealth Bank last week cut by up to 50 basis points the interest rate on almost all its term deposits.

• On Monday, National Australia Bank and ANZ made changes due to Sunday's changes; the latter moved further ahead to make cuts of up to 80 basis points.

• Both NAB and ANZ increased the eight-month term deposit rate to 4.8 per cent.

• Westpac had not changed its interest rates in term deposits. In a third-quarter report on Monday.

Why it matters:

Interest rates on deposits could reflect in banks' profitability as a consequence of any possible rate cut by the RBA. Banks perform the very important function of financing lending activities; hence, there could be broader effects on the economy.

Bottom Line:

The RBA's decision to keep interest rates may have a more profound impact on the economy and the banking sector as banks seek funding from deposits. If recurring profitability threats persist, future reviews in lending policy and interest rates may follow.

🌋BIG PICTURE

• Commonwealth Bank Sells High-Net-Worth Advice Business After Review. Commonwealth Bank is offloading its high-net-worth advice business under a strategic review. The sale follows more than four years of reworking the division, with efforts kicking off by booting investors with portfolios under $2.5 million in 2019.

• Westpac NZ Announces Significant Cuts to Home Loan Rates. That now puts the institution, with the drop of all Westpac NZ's fixed special home loan rates, at having the joint lowest advertised rates of the big five banks for terms from six months to three years and the lowest rates for four- and five-year terms.

• ANZ Bank(NZ) Reduces 1-Year and 18-Month Home Loan Rates. ANZ Bank New Zealand is set to decrease its fixed home loan and term deposit rates, and those by 40 basis points each, to 6.45% p.a. for 1-year special rate and by 50 basis points to 5.99% p.a. for its 18-month special rate.

• Funding Available for Local Projects Through NAB Foundation Grants. Community groups across Australia are being invited to apply for the next round of NAB Foundation Community Grants. The funding provides up to $25,000 for local projects that support community resilience and recovery in the face of natural disasters.

• Major Banks Reduce Term Deposit Rates Amid Changing Market Conditions. The Commonwealth Bank lowered nearly all of its term deposit rates by up to 50 basis points, with the major banks quietly cutting rates.
  

🚨 NAB
NAB Reports Third Quarter Results Amid Economic Challenges

NAB reported a loss in underlying profit of 2%, compared with the quarterly average of 1H24, underpinned by the decline in revenues and a relatively stable net interest margin with increasing expenses.

The Details:

• The third quarter of 2024 is more stable for the bank, supported by execution against plans. Lending balances increased by 1% in the June quarter, which was underpinned by a strong increase of 3% in lending to small and medium-sized Australian businesses.

• One of the priorities for the third quarter of 2024 is deposit growth in business, private banking, and personal banking. The bank delivered further efficiency benefits this quarter, helping manage costs while investing for long-term sustainable growth. The bank remains on target to deliver productivity savings of around $400 million in FY24 and for cost growth in FY24 to be lower than FY23.

• A $118 million credit impairment charge reflects asset quality deterioration across the Group, partially offsetting methodology refinements. The ratio of collective provisions against credit risk-weighted assets increased by 4 bps to 1.51 percent. Non-performing exposures to gross loans and acceptances increased by 11 bps to 1.31 percent, mainly due to deteriorating business and private banking business lending portfolios and higher Australian mortgage arrears.

• The Group raised $35 billion in term funding from July to July and has repaid all of its obligations, including the $18 billion that was maturing in June. As at 30 June 2024, $1.5 billion of the $3 billion on-market ordinary share buyback had been completed and 48,000,774 ordinary shares were cancelled. The remaining buyback is expected to be completed by May 2025, which clearly provides the timeline for investors and stakeholders.

In summary:

Cash earnings and underlying profit are two key financial indicators that mainly relate to financial performance and are most important to investors. The actual outcome could differ due to many factors, including: any change in the Group's financial environment; any change in law or regulation; risks and uncertainties relating to the Russia-Ukraine and Israeli-Palestinian conflicts, and any other geopolitical tensions.

 Why it matters:

It helps the investor in keeping track of such factors and their direct impact on the group's financial performance and its share price. In this way, an investor is sure to get the best investment decision in companies by staying ahead of Geopolitical Risks and Regulatory Changes.

Bottom Line :

Understanding the fact that external factors are playing a critical role in changing the financial performance of a firm is very important in making informed investment decisions. Staying informed and monitoring the risks helps an investor in handling the associated uncertainties of returns on their investments.

🈺 BUSINESS
Booktopia Acquired by Online Electronics Store digiDirect

McGrathNicol, the administrators of Booktopia, have identified a buyer for the financially distressed online book retailer, which entered administration in July after accruing $60 million in significant debts.

The Details:

• Australian-owned omnichannel book retailer Booktopia has been sold to online electronics store digiDirect. The majority of the debts were actually due to publishers, with $15 million customers having orders and gift vouchers.

• The deal included the acquisition of the Angus & Robertson and Co-Op Bookshop brands as part of the acquisition by digiDirect, along with some $14 million worth of inventory.

• At the time Booktopia entered administration, some 150,000 orders worth $12 million were outstanding, mainly comprising preordered books not yet received by the company. Another $3 million was owed to customers who held gift cards.

• Booktopia fell into administration in July due to cost-of-living pressure on customers, heightened online competition, and volatility in the markets.

What next :

The administrator said the deal allowed the business to immediately resume trading, with the new buyers confirming a formal relaunch was set for late August once operational processes resumed.

The deal will let the business resume trading immediately, according to the administrator, while the new buyers have confirmed a formal relaunch is set for late August when operational processes resume.

Why it matters:

The profitable sale of Booktopia will ensure that one of the larger players in the Australian publishing market survives, with suppliers and staff inundated with stability. This sale is characteristic of the retail industry's ability to adjust to changing market conditions in a heartbeat.

Bottom line:

The Booktopia sale is evidence that the Australian publishing industry is resilient and highlights the advantage of forming strategic alliances in insecure times. Considering the history of reputable retailers in executing successful acquisitions, this acquisition assures Booktopia and all its stakeholders of continued success.

🈺 WESTPAC
Westpac Reports 6% Net Profit Growth in Q3 2024 Financial Results

Westpac, one of the largest banks in Australia, announced its strong financial performance for the third quarter of 2024.

The Details:

• Its unaudited net profit went up by $X million against the first half of 2024 due to a slight fall in pre-provision profit, which was offset by a drop in impairment charges. The net interest margin of 1.92% was well-managed, with the core NIM moving 2 basis points higher to 1.82%.

• Operating momentum was strong, with significant customer deposit growth of $15.4 billion and loan growth of $14.7 billion. This includes Australian household deposit growth of 3% and housing loan growth of 8%, which stands higher than system 4. Actions aimed at improving customer experience by introducing new digital services and ensuring customer safety by better cybersecurity have been highlighted in this quarter for Westpac.

• The customer service-oriented approach of the company lent its support to another strong quarter, with the unaudited net profit of this company at $1.8 billion, up 6% compared to the first half 2024 quarterly average.

• The NIM was 1.92 percent, comprising higher earnings on capital and hedged deposits, Treasury, and Markets income of 12 basis points, down 2 basis points, hedging items that will reverse over time deterring 2 basis points.

• NII rose 2% on both higher net interest margin and loan growth. Non-interest income fell 4% on lower financial market revenues, part of the weakness in overall financial performance. Expenses rose 2% on higher investment spend, which is weighted to the second half of 2024, and ongoing inflationary pressures, particularly in technology services. Impairment charges of 4 basis points to average loans were down from 9, while reflecting an improvement in the economic outlook.

• At 30 June 2024, Westpac's CET1 capital ratio stands at 12.0%, above the target operating range. The quarterly average liquidity coverage ratio of X% and net stable funding ratio of Y% remain above regulatory minimums. It raised $36 billion in new long-term wholesale funding, while credit impairment provisions are at $5.1 billion, above expected losses by $1.6 billion. The CAP to credit RWA ratio decreased very slightly to 1.34%.

Why it matters:

Westpac should be able to manage its risks soundly and maintain a strong capital position with the view of ensuring the stability of the bank in the long term and negotiating any future economic uncertainties. Investors need to keep a close eye on the financial condition of Westpac and its risk management practices so as to make well-judged investment decisions.

Bottom Line:

For the long-term stability of the bank and overcoming any future economic uncertainties, good risk management and strong capital position will be imperative for Westpac. Proper investment decisions can only be taken if the investors are on their toes regarding monitoring the financial position of Westpac and its risk management framework.

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