BNK Banking Corporation doubles down on high margin push as profits surge

BNK Banking corporation has closed its second high-margin structured credit deal for the year.

Hot on the heels of a convincing turnaround in its 2025 full year results, BNK Banking Corporation (ASX: BBC) has now cranked up its growth profile again after buying into the structured credit market for the second time this year.

The deal has turbocharged the company’s rapid push into the niche high-margin space, which is becoming an increasingly lucrative corner of the lending world and one which lines up nicely with the bank’s capital-efficient strategy.

Lending rates in this emerging space also sit well above the thin margins of the prime mortgage market that BNK has long been tied to, promising far richer returns than its traditional bread-and-butter business.

The new wholesale lending product, known as a senior-secured “warehouse facility”, involves BNK teaming up with a syndicate of lenders to provide a source of funds for a rising Australian non-bank financier.

The idea behind the facility is to provide non-bank lenders with access to those funds, which they can then on-lend to customers at a higher interest rate.

Similar to its July investment, much of the new funding has come from a major investment bank, with BNK chipping in a smaller slice. The final top-up came from the non-bank lender, which takes on the riskiest position in the stack and would be the first to wear any losses if things went south.

The new deal represents a win-win for BNK, which has used the structured credit product to open up a third revenue stream outside of the traditional residential mortgage market and the usual fees it receives for managing them.

Importantly, the transaction also allows BNK to shift more of its book into the higher margin bracket.

The new deal is the latest milestone in what has become one of the ASX financial sector’s quieter comeback stories.

After several years wrangling with tight margins and an imbalance in its lending mix, BNK emerged from the 2025 financial year looking leaner, sharper and more profitable. Underlying net profit after tax hit $3.8 million - a $4.7 million turnaround on the prior year.

The transformation was driven by a bold portfolio reshuffle. BNK deliberately trimmed back its lower-return prime residential book by warehousing $347 million worth of low interest mortgage loans in a Goldman Sachs facility, while retaining the management fees.

A second deal settled shortly after involved a similar, though partial sale of prime assets warehoused by Bendigo Bank and estimated to be $220 million. Both deals unlocked capital, bolstered the balance sheet and boosted ongoing service revenue, which more than doubled to $8.9 million in 2025 - thanks largely to these two deals.

The move neatly diversified the bank’s earnings base allowing BNK to channel capital into the higher-margin structured credit, commercial and specialist residential segments. Those now make up about 30 per cent of total lending and are bringing in better returns per dollar of capital deployed.

The rotation had an immediate and positive impact on the bank’s bottom line with net income for interest rising 13 per cent to $21.9 million in the 2025 financial year, while the net margin – the difference between the rate the bank lends at and what it pays its depositors - lifted a huge 43 per cent to 1.52 per cent for the year.

The second half of 2025 told an even better story, with net interest margins climbing a further 31 basis points to 1.7 per cent as BNK’s funding costs eased and higher-yielding loans gained traction.

Crucially, the pivot has not come at the expense of credit quality. Arrears remained well contained, loan-to-value ratios were conservative and nearly half the book was ahead on repayments — comfort factors for any financier wanting margin expansion without a jump in risk.

And BNK has another card to play too – its capital strength. The bank exited 2025 sporting a 29 per cent capital adequacy ratio – the ratio between cash in the bank and money lent. This is one of the highest across the sector and a clear green light for growth without the need to return to shareholders for future funding.

Meanwhile, management is also pushing ahead on technology renewal and operational uplift to build scalability into its distribution network - particularly though brokers, aggregators and digital channels that is already delivering the lion’s share of new business.

Looking ahead, BNK says it plans to keep growing its higher-margin, higher-return lending business by expanding its senior secured warehouse funding as it continues to push for a steady stream of fresh prime home loans.

It is also aiming to sew up new partnerships and add more products, while keeping a tight focus on controlling costs.

For a bank whose shares are trading on a hefty 70 per cent discount to its audited $1.00 per-share net tangible assets, the stakes are obvious — if the turnaround continues, the re-rating potential could be meaningful.

And this month’s investment news suggests BNK’s comeback story has plenty of chapters left to write.

Is your ASX-listed company doing something interesting? Contact: office@bullsnbears.com.au