This is one where you need to look thru the juicy dividend at...

This is one where you need to look thru the juicy dividend at their long term strategy. Short term they will continue to milk the decent position they have in Tas while scooping up loans via the broker market in Victoria and NSW. With the investor lending restrictions APRA has placed on investor lending which is affecting the Big 4 + Macquarie, you can see how MYS will be able to pick up a few loans the other banks no longer will touch.

So for the time being you will see their loan origination volumes rise (esp via broker channels), and their margins remain reasonable, so they can keep their div payout up and their shareholders happy.

BUT this is a potentially disasterous strategy for the medium / long term.

They have a thin capital base in terms of investor spread and market sentiment - if they start facing problems there will be no one to bail them out unlike the bigger banks. The reason why their credit rating is so low is because they are not systemically important and carry no government support (maybe a little from the Tas govt but they are hardly in good shape themselves).

MYS also doesn't have the funding base to grow too much even via the broker channel so will need to become more reliant upon securitisation, again exposing them to a fickle funding base without much diversity.

So MYS is now piling into the riskiest mortgages which the big 4 won't touch, at thin margins (look at their loan pricing v the market - its cheap), with a narrow capital and funding base. They are basically rolling the dice and putting all on black, hoping the housing markets in Vic and Tas (and a little Qld) keep growing. ANY small hiccup there (like we are seeing in WA) and this bank is toast. They have low loan loss reserves, a thin capial base on a rise weighted bases and no systemic support. Shareholders would be wiped out very quickly. Think Pyramid Building Society in Victoria and you have MYS all over again.