BNK Banking Corporation unveils fivefold surge in full year profits

BNK announced a five-fold lift in underlying net profit to $3.8M, for the 2025 financial year with interest margins up 43 per cent.

BNK Banking Corporation (ASX: BBC) has served up a convincing turnaround in its 2025 full year numbers with profits, margins and revenue streams all pointing sharply upwards as the bank’s high-margin strategy starts to hit its straps.

The nimble, fast-growing challenger bank notched up an almost five-fold jump in underlying net profit after tax to $3.8 million, which is a $4.7 million uplift on last year.

Statutory profit after tax, which accounts for added non-cash adjustments, also came in materially stronger, up by $8 million year-on-year to $1.3 million signalling that the bank’s deliberate repositioning of its balance sheet is starting to fire on all four cylinders.

Management took the critical decision to move 30 per cent of its loan book into higher margin – mainly commercial - loans at the start of the financial year on the back of severe margin compression being increasingly witnessed by the smaller banks in the highly competitive home loan market.

The rotation appears to have an immediate and positive impact on the bank’s bottom line with net income for interest rising 13 per cent to $21.9 million, 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 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.

Income from non-interest sources - mostly management fees - more than doubled to $8.9 million, thanks largely to two savvy deals. The first, which settled in November last year was an inaugural securitisation of $347.1 million worth of low interest residential loans sitting as warehoused assets in a Goldman Sachs facility.

The second transaction 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 created ongoing servicing revenue, neatly diversifying the bank’s earnings base.

On the cost side, operating expenses climbed 12 per cent to $24.2 million, reflecting BNK’s initial $1.1 million expense of rolling out its improved core banking platform. Management says the spend provided the groundwork for future scalability, regulatory compliance and improved customer service - all necessary costs for a lender looking to grow without the ballast of a branch network.

Notably, the higher-margin lending portfolio now accounts for about 28 per cent of BNK’s loan book, nudging closer to its initial 30 per cent target, while commercial loans expanded strongly, climbing 79 per cent to $136 million.

Average residential loan sizes remained steady at $378,000 per loan and continued to maintain healthy equity ratios, helping BNK cut its bad debt provision by $223,000 and notably, without writing off a single bad debt.

Helping to reduce BNK’s interest rate risk, fixed-rate loans are largely a thing of the past with the book now predominantly variable, leaving the bank better aligned to current market conditions.

According to management, the credit quality of the loan book is also holding up well, even as it shifts towards higher-margin lending. Almost half of BNK’s customers are actually ahead on their repayments with only 1.1 per cent of home loans and 0.95 per cent of commercial loans running at more than 90 days overdue.

Perhaps most telling is BNK’s capital adequacy ratio - a measure of its own money available to cover the risk it takes on - which leapt 24 per cent to 29 per cent.

Regulators in Australia usually require banks to keep their capital adequacy ratio above 10 per cent. However, BNK is sitting on almost three times that minimum requirement, giving the lender a significant buffer and plenty of firepower to pursue growth opportunities going forward.

Our deliberate shift toward higher-margin, capital-efficient assets is driving sustainable performance. We also laid important groundwork for our technology transformation and regulatory frameworks. The focus remains on sustainable underlying profitability.

BNK Banking Corporation Chief Executive, Allan Savins

Looking ahead, BNK says it plans to grow its higher-margin, higher-return lending business, while expanding its senior secured warehouse funding as it pushes to bring in 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.

A top notch example of product innovation was announced two weeks ago when BNK opened up a third stream of revenue by stepping into the structured credit market, joining a syndicate of lenders to support a fast-growing Australian non-bank financier.

In the deal, most of the senior funding was supplied by a top tier investment bank, with BNK taking a smaller share. The non-bank lender tipped in the final layer, holding the riskiest slice of the structure and standing first in line to absorb any losses.

The warehouse facility gives the non-bank financier access to wholesale funding, which it can then on-lend to its customers, creating a new growth channel for all parties.

BNK’s 2025 results appear to show a challenger bank hitting its stride, with profits rebounding, margins widening and new revenue streams taking shape. By shifting into higher-return assets, unlocking capital through smart transactions and keeping credit quality intact, the bank has started to set itself apart in a crowded and highly competitive market.

With a rock-solid capital buffer, an expanding commercial book and a willingness to innovate through ventures like structured credit, BNK looks well positioned to build on its momentum and chase meaningful growth in FY26 and beyond.

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