BNK expands commercial lending as underlying profit rises despite technology costs

Underlying earnings improve while statutory profit turns negative

BNK Banking Corporation Limited (ASX:BBC) produced a modest lift in underlying earnings in Q1 FY27, but the statutory result went backwards. Underlying NPAT rose 4% year on year to $315,000, while statutory NPAT was a $59,000 loss compared with a $75,000 profit in Q1 FY26.

The company attributed the statutory result in part to continued investment in technology. That distinction matters for a bank still reshaping its platform: the underlying number points to improving returns from the lending portfolio, while the statutory result captures the cost of building that capability.

Commercial lending drives growth beyond $1 billion

Total lending surpassed $1.02 billion at the end of the quarter, up 2% during Q1 FY27 and 8% from the prior corresponding period. Commercial lending was the standout contributor, rising 15% during the quarter to $284 million, while senior secured lending increased 33% to $53 million.

The portfolio shift continues a direction evident in BNK’s Q1 FY26 trading update [link unavailable]; that earlier update reported selective commercial lending growth and a focus on higher-margin lending. In the latest quarter, the growth translated into net interest income of $6.25 million, an 11% increase on Q1 FY26 and 1.4% higher than Q4 FY26.

Funding mix supports income growth as margin eases from June

BNK’s net interest margin improved to 1.92%, up from 1.83% a year earlier. It nevertheless fell 8 basis points from the 2.00% recorded in Q4 FY26, consistent with the company’s previous commentary on the full-year result.

The bank said its negotiable certificate of deposit program reached $52 million during the quarter, reducing reliance on market-sensitive term deposits. Total deposits rose to $1.08 billion, producing a deposit-to-loan ratio of 106%. Chief executive Steve Kinsella said competitive conditions, subdued volumes and elevated deposit rates continued to weigh on the market, particularly in residential investment property.

Arrears fall as capital remains comfortably above requirements

Credit quality improved across both major lending categories. Residential loans more than 90 days in arrears fell to 0.20% from 0.47% at 30 June 2026, while commercial arrears declined to 0.75% from 0.87%.

BNK maintained a capital adequacy ratio of 22.1% after redeeming $8.75 million of subordinated Tier 2 notes in August. Net tangible assets remained stable at $0.99 per share, giving the quarter a relatively reassuring credit and capital profile despite the statutory loss.

Cloud migration clears first phase as costs remain under scrutiny

BNK also completed Phase 1 of its core banking upgrade over the weekend of 17 and 18 October, migrating to a fully cloud-based environment with minimal customer impact, according to Kinsella. Phase 2 is intended to improve the bank’s customer experience and platform capability, although the announcement does not quantify the remaining investment or its expected effect on statutory earnings.

The immediate test is therefore twofold: whether BNK can preserve the improved underlying returns as funding competition remains elevated, and whether the technology program can move from an expense on the statutory line to a measurable operational benefit. The next half-year figures should provide a clearer read on both.