MyState Earnings: Guidance Disappoints as Competing With Wide-Moat Banks Takes Toll

MyState’s fiscal 2023 cash net profit after tax increased 20% to AUD 38.5 million, with 14% loan growth helping offset weaker net interest margin and rising operating costs. The result missed our expectations by 3.5%, though. The funding cost disadvantage to major banks, as MyState is more reliant on savings and term deposits, was more pronounced than we expected. When customer saving rates peaked and banks got away with paying very little for customer deposits, small banks more reliant on term deposits benefited most. The difference in the cost of funds between major and nonmajor banks narrowed, but this appears to be widening again in a higher-rate environment. MyState’s NIM fell 4 basis points to 1.63%, with the second half down to 1.55%. In contrast, Commonwealth Bank's NIM increased 17 basis points to 2.07% in fiscal 2023.