AMP, the Australian wealth manager, has announced its plans to establish a new banking division specifically tailored for sole traders and small businesses. The company acknowledges that margins will continue to face pressure in fiscal 2024.
The digital bank offering is scheduled to be built during FY 2024 and is set to launch in the first quarter of the subsequent fiscal year. AMP plans to allocate approximately $60 million (AU$39.1 million) towards the small business division in the 2024 and 2025 fiscal years. A significant portion of this investment, around AU$40 million, will be capitalized.
By implementing this initiative, AMP anticipates that the banking unit's net profit and return on capital will experience growth starting in 2027 while not affecting cost targets.
Moreover, AMP emphasizes that this strategic step aims to mitigate funding risks over the medium and long term, with a primary focus on establishing a sustainable funding base.
To build the platform for the new small business division, AMP will collaborate with Engine by Starling, a subsidiary of the UK's digital bank, Starling Bank.
While AMP acknowledges that the banking unit's near-term performance will continue to be influenced by prevailing market conditions, it predicts that the net interest margin for fiscal 2023 will be around 125 basis points.
In the foreseeable future, AMP expects the net interest margin to experience ongoing pressure during fiscal 2024. However, it also foresees long-term benefits as lower funding costs are expected due to the diversification of AMP Bank's funding sources through the introduction of the new small business division.
Nevertheless, AMP projects that nominal growth is anticipated for AMP Bank in fiscal 2024.
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