BNK Banking posts 31% profit jump as margin expansion strategy gains traction
BNK Banking Corporation Limited has reported statutory net profit after tax of $0.42 million for the six months ended 31 December 2025, representing a 31% increase on the prior corresponding period. The result reflects continued execution of the company’s strategic portfolio rebalancing towards higher-return, capital-efficient assets, driving net interest margin expansion of 49 basis points to 1.88% compared to 1H25.
Net Interest Income grew 5% to $11.6 million, supported by a deliberate shift in asset mix and disciplined funding management. Operating expenses remained flat at $12.2 million despite targeted investments in capability and technology. Underlying NPAT of $0.44 million declined 76% on 1H25, though this comparison reflects the absence of one-off Robusta transaction fee income recognised in the prior period rather than operational weakness.
The company’s strategic pivot continues to reshape its earnings profile, with higher-return assets now comprising 43% of the total portfolio, up from approximately 15% at December 2024. Management remains focused on sustaining net interest margin momentum through ongoing portfolio optimisation, with a medium-term target of net interest margin exceeding 2%.
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What is net interest margin and why does it matter for bank investors?
Net interest margin represents the difference between the interest income a bank generates on loans and investments and the interest it pays on deposits and borrowings, expressed as a percentage of interest-earning assets. This metric serves as a core profitability indicator for banks, reflecting how efficiently management deploys capital to generate returns.
For BNK Banking 1H26 Results, net interest margin expansion to 1.88% demonstrates management’s ability to widen the spread between lending yields and funding costs. The 49 basis point improvement on 1H25 signals structural enhancement in profitability per dollar of deployed capital, driven by deliberate portfolio repositioning towards higher-yielding commercial and senior secured assets.
Investors should note that net interest margin directly influences return on equity, particularly for smaller banks where operating leverage from scale remains limited. BNK’s medium-term target of net interest margin exceeding 2% would position the company closer to peer averages, supporting the path towards the stated return on equity target of above 10%. The current trajectory indicates management is successfully executing this strategy without requiring unsustainable volume growth or excessive risk-taking.
Higher-return assets now represent 43% of portfolio
The company’s portfolio reshaping strategy continued during 1H26, with deliberate repositioning away from lower-margin prime residential mortgages towards commercial lending and senior secured investments. The commercial loan book surpassed $190 million, representing 40% growth in 1H26, whilst senior secured investments were established during the period and now comprise 6% of the portfolio.
Higher-return assets (commercial loans, senior secured investments, and select residential mortgages) increased to represent 43% of total portfolio compared to approximately 15% at December 2024. Total lending grew $80 million in 1H26 to reach $1,181 million, with growth concentrated in the targeted segments rather than through expansion of lower-margin residential volume.
| Category | Dec-24 | Jun-25 | Dec-25 |
|---|---|---|---|
| Commercial | 8% | 15% | 19% |
| Senior Secured | 0% | 0% | 6% |
| Residential | 78% | 77% | 62% |
| Higher Return Assets | ~15% | ~15% | 43% |
| Total Portfolio | $903m | $983m | $1,181m |
The asset mix shift represents the primary driver of the 49 basis point net interest margin expansion to 1.88%. Management’s 1H26 financial results presentation attributed 31 basis points of the margin improvement directly to lending mix changes and 9 basis points to senior secured investments. Continued execution of this strategy positions the company to achieve further margin improvement towards the medium-term target exceeding 2%, supporting improved return on equity over time.
Credit quality remains within management tolerance
Total 90+ day arrears across the loan book stood at 1.5% of total loans at 31 December 2025. The residential portfolio recorded 90+ day arrears of 1.37%, whilst commercial 90+ day arrears reached 1.84%. The uptick in commercial arrears was driven by 4 accounts, which management stated remain well secured within the portfolio’s risk settings.
The company recorded no write-offs during 1H26 and maintained only 1 mortgagee in possession case across the residential portfolio, with no expected loss. Conservative loan-to-value ratios provide loss absorption capacity:
- Residential portfolio: $732 million with weighted average LVR of 62%, supported by $79 million in offset account balances (11% of the book)
- Commercial portfolio: $191 million with weighted average LVR of 64%, well diversified with maximum loan size of $3.2 million
The increase in expected credit loss provision to $1.1 million (33 basis points of loans) aligns with the growth in commercial lending and modest uptick in delinquency rates. The company noted that higher-return lending segments inherently carry modestly elevated risk profiles compared to prime residential mortgages, though current arrears levels remain within management’s established tolerance and risk appetite.
Capital strength provides runway for growth
BNK Banking reported a Capital Adequacy Ratio of 27.04% at 31 December 2025, up 21 basis points on 1H25 and substantially above regulatory minimums. This capital position provides capacity to pursue further growth in higher-return lending segments without requiring equity raises in the near term, preserving shareholder value.
The company’s liquidity ratio stood at 20.21%, down from 26.16% at June 2025, reflecting deployment of liquid assets into lending during the period. Net Tangible Assets per share increased 1% to $1.00, supported by earnings retention and disciplined balance sheet management.
Management noted that the investment-grade credit rating from S&P Global Ratings supports funding diversification and provides access to broader funding sources. Term deposits increased as a proportion of total funding during 1H26, reflecting customer preference for higher rates in a competitive market, though the overall funding composition remained balanced with continued emphasis on stable, lower-cost funding sources. Total deposits reached $1,029 million, up 2% on June 2025.
The strong capital position supports management’s medium-term growth plans, particularly the scaling of senior secured investments and selective commercial lending expansion, whilst maintaining the flexibility to pursue strategic partnerships and product expansion opportunities as they emerge.
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Medium-term targets and management outlook
BNK Banking 1H26 Results outlined three strategic pillars underpinning the company’s medium-term value proposition: Growth, Margin, and Profitability. Management established the following quantitative targets:
- Net interest margin exceeding 2%
- Return on equity exceeding 10%
- Cost to Income ratio below 60% (currently 92%)
Near-term strategic priorities focus on sustaining net interest margin through portfolio mix and funding discipline, scaling higher-return assets and senior secured investments within defined risk settings, and maintaining cost discipline whilst investing in priority capability uplift. The company intends to selectively originate prime residential loans at appropriate returns whilst accelerating growth in higher-return segments.
- Scale higher-return assets and senior secured investments
- Selective prime residential lending at appropriate returns
- Grow non-interest income streams
- Progress targeted technology improvements
- Pursue strategic partnerships and product expansion
Allan Savins, Chief Executive Officer
“In 1H26 we continued to rebalance the portfolio toward higher-return, capital-efficient assets, supporting an improvement in asset mix and further strengthening NIM. We also advanced key strategic initiatives, including the commencement of senior secured investments and measured growth in commercial lending, further diversifying our earnings base.”
The substantial gap between the current Cost to Income ratio of 92% and the medium-term target below 60% illustrates the operating leverage potential as the portfolio scales. Management expects volume and margin-led performance to drive this improvement, supported by the investment-grade credit rating that provides enhanced funding efficiency and diversified funding sources. The company maintained its focus on achieving steady, sustainable growth rather than headline portfolio expansion, with continued emphasis on capital efficiency and risk-adjusted returns across all lending segments.
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