Bendigo Bank looks to neobank Up to accelerate profit push
Regional lender Bendigo Bank aims to lift profitability by 2027 despite posting a $97.1m statutory loss, banking on its neobank Up to drive future growth.
Regional lender Bendigo Bank has told investors it hopes to see a jump in its profitability over the next five years, and expects its fledgling neobank Up to start delivering in two years.
Ruling off an 8.4 per cent cash profit slump, a better result than the market had anticipated, the bank told investors it was now on the pathway to further profitability.
Bendigo Bank posted a $97.1m statutory loss after taking a $540m charge for the goodwill of Adelaide Bank, alongside a hit from the closure of several branches.
The ASX-listed regional bank has made several acquisitions in recent decades, including its $4bn merger with Adelaide Bank in 2007. But Bendigo Bank chief executive Richard Fennell said the lender was banking on the success of its $116m purchase in 2021 of Ferocia and its neobank arm Up.
Up is expected to hit profitability in 2027, with the neobank now boasting more than 1.2 million customers and $2.8bn in deposits.
Bendigo Bank’s customer numbers were up 11 per cent over the year, topping 2.9 million.
Mr Fennell told The Australian Up’s customers, many of whom were younger millenials, were now approaching the home lending stage. He said Bendigo Bank would do well from these borrowers, with the bank boasting a 200 basis points margin on its Up deposits and loans.
“We’re hopeful we can maintain the spread, if things keep tracking that way,” he said.
Bendigo Bank told investors its Net Interest Margin, the core metric reflecting the profitability on its lending, closed the year out flat at 1.88 per cent. But this only comes after Bendigo Bank was sprung earlier in the year by a surge in borrowers, forcing the lender to go to wholesale markets for more expensive access to cash.
The bank told investors it expected to fund much of its lending through lower cost deposits in the coming year.
Lowering the cost of the bank will be a core plank of Bendigo Bank’s plans to lift its return on equity to 10 per cent, well up from its current 7.34 per cent.
This move surprised the market, with Barrenjoey banking analyst Jonathan Mott questioning Mr Fennell on the goal which would put Bendigo Bank close to CBA in return on equity rankings.
The Bendigo Bank boss said he was “very aware” of the difficulties of the goal, but noted the smaller regional lender had more scope to raise returns given its size.
Mr Fennell told The Australian productivity improvements would be key to the profitability goal.
“Over ’26, ’27, we’ve got a fair bit of heavy lifting to do,” he said. This comes as Bendigo Bank flagged plans around the rollout of artificial intelligence platforms within the bank. Mr Fennell said it was too early to be drawn on which provider Bendigo Bank would sign a deal with.
Rival lender CBA has made a big push on the back of AI, announcing plans to cut jobs in response to the rollout of the tech. But Mr Fennell said it was too soon to “make any predictions” if the same would be seen at Bendigo Bank.
“I think it’s really important to look to embrace AI to stay relevant,” he said.
Bendigo Bank took a $12m pre-tax charge in its latest results after closing 10 corporate branches.
But Mr Fennell said Bendigo Bank now had “the right size network”.
He told The Australian the branches gave Bendigo Bank access to small business customers, noting the branches were needed to continue supporting that market.
But the closures attracted the ire of the Finance Sector Union, which criticised the loss of 100 jobs. FSU national secretary Julia Angrisano warned the bank had posted “posted hundreds of millions in profit, but communities and workers are paying the price”.
Giving guidance for the year ahead, Bendigo Bank said it was looking to see better growth from its business and agricultural lending portfolios in the year ahead.
Jarden analyst Matthew Wilson said this push fit Bendigo Bank’s footprint but would require it to compete against rival lenders Nab, Westpac, Rabobank and Judo. Shares in Bendigo Bank rose 1.1 per cent to $13.13 on Monday.
Bendigo Bank announced a 33c final dividend, taking full year returns to 63c.
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Originally published as Bendigo Bank looks to neobank Up to accelerate profit push
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