Investors searching for glimmers of hope that the housing market is improving may want to pay attention to Suncorp Group Ltd's (ASX: SUN) quarterly update that was released today.
I am not sure if the earnings report will help the Suncorp share price though as weak overnight leads from Wall Street is likely to trigger widespread selling on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index this morning.
The Suncorp share price has been lagging the big four over the past month with the Queensland-focused banking and insurance group gaining 2.8% while the Commonwealth Bank of Australia (ASX: CBA) share price, Westpac Banking Corp (ASX: WBC) share price, Australia and New Zealand Banking Group (ASX: ANZ) share price and National Australia Bank Ltd. (ASX: NAB) share price rallied between 4.5% and 6.5% over the period.
The good news in the results
However, Suncorp could win support after it reported a 1% increase in total lending to $58.9 billion in the March quarter compared to the same time last year.
The drop in home lending was more than offset by an increase in business loans and its Banking and Wealth CEO, David Carter, said the short-term outlook is positive.
"We expect home and business lending growth to improve in the quarter ending June 2019, particularly following Suncorp's $3 billion lending pledge to the small business and agribusiness sectors, providing these important market segments access to credit to invest and grow," said Mr Carter.
"Over this time, we have maintained focus on asset quality, managing our margin and supporting the broker channel, including initiatives to improve operational efficiencies."
Where the cracks are
On the flipside, it isn't all good news. Suncorp is warning that its net interest margin is likely to fall to the bottom end or just below its range of 1.8% to 1.9% for the full year despite earnings wholesale funding costs.
The problem is competition and Suncorp said there's lots of that in the mortgage market, which continues to be buffeted by a waning housing market and tighter lending requirements.
It also reported a big jump in delinquencies due to in large part to the flooding in Townsville and across North-West Queensland that occurred during the quarter.
Past due loans which are not impaired increased 2.5% to $537 million over the quarter, but management is confident that these distressed borrowers will come good over the next six months as that's what happened in previous flooding events.
What's more, Suncorp believes that weather conditions for the agri-business sector will also improve in the near term (this sector had been hit by drought or floods) and that also means the worse could be over for companies that recently issued profit warnings due to the drought, such as Nufarm Limited (ASX: NUF).
While Suncorp's results won't necessarily bring cheer to its shareholders, it could give others hope that the tide is turning in the banking and agriculture sectors.
