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BNK Banking Corporation Limited (ASX: BBC)

KEY POINTS
Aggregation Segment Continues to Drive Loan Book Growth: The Aggregation segment
experienced strong settlement and loan book growth in the December quarter. Loan
settlements were at the highest quarterly levels to date of $5.3 billion, seeing the loan
book close above $50 billion. A key driver of loan growth in the Aggregation segment is
the increased number of loan writers, which has grown at a faster rate than we forecast.
At 31 December 2020, the Aggregation segment had a network of 1,910 loan writers. This
represents growth of 9.8% in 1H’FY21. In addition to this, the average size of the settlement
per broker has increased in 1H’FY21.
The Company’s total loan book grew 5.2% over the December quarter to $52.6 billion. On
the back of buoyant lending conditions, we are forecasting the total loan book to grow to
$57.3 billion in FY21.
Banking Segment Sees Strong Settlement Demand: The Banking segment recommenced
on-balance sheet lending in the December quarter with strong settlements of $35.7 million.
The loan book closed above $300 million at December-end, up 8.9% over the quarter and up
14.4% Year-on-Year (YoY). The bank is well positioned to continue to grow the loan book with
solid growth in the deposit base and the Tier 2 subordinated note issue.
Funding Mix Continues to Improve: The funding mix of deposits continued to improve
in the December quarter with transaction accounts increasing 50.4% to $245.6 million.
Transaction accounts now account for 65% of the deposit mix. Transaction accounts drove
the growth in the deposit base with the bank having deposits of $391.3 million at Decemberend.
This is an increase of 20.5% increase Quarter-on-Quarter (QoQ) and a 13.2% increase
for the 1H’FY21.
$8.75m Raised Through a Subordinated Note Issue: In February 2021,the company
completed a Tier 2 subordinated note issue raising $8.75 million. The notes were issued
to sophisticated and wholesale investors and have a maturity date 10 years from the
settlement date with a call date 5 years from the settlement date. The notes will pay interest
on a quarterly basis at a floating rate of 90 day BBSW + 5.40% p.a. At the current 90 day
BBSW of 0.015%,the interest payment would equal 5.415% p.a. The capital raised from
the subordinated notes puts the Company in a strong capital position from a regulatory
perspective.
Price Target: We have upgraded our price target from $1.12 to $1.19 per share. This
represents a 63% premium to the share price of $0.73 at 22 February 2021. The upgrade
is driven by two key factors: (1) Faster than expected growth in the Aggregation segment
in 1H’FY21 has offset a reduction in forecast net interest income due to a reduction in
forecast settlements in the Wholesale segment and declining interest rates; and (2) We have
amended the price target calculation to be based on normalised earnings to better reflect the
value of the continuing operations of the Company.