Suncorp is still tipped to reward shareholders with a special dividend later this year, despite a looming hit to earnings from a deal to offload $1.6 billion of bad loans.
The company moved to put one of its most turbulent periods behind it on Thursday, selling troubled loans to investment bank Goldman Sachs for 60¢ in the dollar.
The sale of the assets - mainly commercial property and corporate loans - will result in Suncorp's "bad bank" division posting a hefty loss this year, which could drag down group earnings by a up to quarter. It will also wind down the remaining $1.2 billion in assets held in its "non-core" bank over the next year.
But despite the significant hit to this year's profits, analysts say the sale will not stop the company paying out a special dividend from surplus capital.
The deal draws to a close a challenging chapter for Suncorp and the company says it will now be better placed to focus on its core business of insurance and banking.
Chief executive Patrick Snowball conceded the deal would come at a "significant" cost to this year's earnings but it also removed a "monkey" from the group's back. While there might have been an upside in keeping the assets on its books, this would have come with extra risk for the company.
"It would remain a risk and a distraction to our core business and would have an uncertain outcome," Mr Snowball said.
While many smaller banks went through a rough patch during the global financial crisis, Suncorp's lending arm suffered a near-death experience. In 2009, it was forced to move $18 billion in troubled commercial loans into a "bad bank" after problems caused by insufficient risk settings within the bank.
It has since been running down the portfolio of poorly performing loans, and the latest plan will result in the troubled assets being removed from its balance sheet within about a year.
The sale of the troubled loans will mean its "bad bank" will lose up to $490 million this year, and analysts say this will drag down the group's total profits by about a quarter.
But the company said its capital position would not be affected by the earnings hit, and it might pay out a bigger share of profits as dividends to ensure returns to shareholders remained attractive.
Deutsche Bank analyst Kieran Chidgey said the company would have about $1.2 billion in surplus capital, allowing it to pay a special dividend of 23¢ a share, after last year's special dividend of 15¢. He also estimated the company could pay out as much as 100 per cent of its earnings in dividends in a final ordinary dividend of 27¢ a share.
"We see the tradeoff of potentially greater capital extraction for immediate risk reduction as a net positive," he said.
Suncorp chairman Ziggy Switkowski said the board might exceed its 60 per cent to 80 per cent dividend payout ratio target range and said any surplus capital would be returned to shareholders.
Suncorp shares fell 1.8 per cent, or 21¢ to, $11.65.