Bendigo disappoints markets as margins come under pressure

Bendigo and Adelaide Bank chief executive Marnie Baker has defended an increase in costs by saying the lender’s main focus is on growth, after the regional bank flagged rising expenses and pressure on its margins.

Bendigo shares plunged almost 10 per cent on Monday, after the lender warned of “headwinds” to its profit margins as a result of stiff competition for new loans. They closed the session at $10.

Bendigo and Adelaide Bank managing director Marnie Baker: “We’re focused on growing the business while we have that opportunity to grow.”

The drop in its share price came despite cash earnings rising by 51.5 per cent to $457.2 million for the full-year, and a sharp increase in its dividend.

The bank’s net interest margin - which compares the cost of funding with what it charges for loans - dropped 7 basis points to 2.26 per cent, due in part to growth in fixed-rate loans and stiff competition on new business.

At the same time Bendigo said its operating costs would be about 3 per cent higher in 2022 due to expenses linked to a fintech acquisition, and other technology costs.

Amid a mixed reaction from analysts, Ms Baker defended the increase in costs by saying this was needed to fund the bank’s growth, including its digital strategy. In the mortgage market, Bendigo expanded rapidly, at 2.8 times the average pace across the industry.

“We’re focused on growing the business while we have that opportunity to grow, which we do,” Ms Baker said.

“However, we are needing to still continue to invest and have some expenses that are supporting… the extraordinary growth that we’re actually seeing.”

In a sign of its plans to compete against fintech disruption, Bendigo also said it would buy out Ferocia, its partner in the neobank Up, for up to $116 million in Bendigo shares. Ms Baker said the deal would allow Bendigo, which is also part owner of digital lender Tic:Toc, to roll out more products on Up.

While some analysts said Bendigo’s result was in line with expectations, Jefferies’ veteran banking analyst Brian Johnson questioned Ms Baker over the company’s share price performance on a call with investors. Mr Johnson said Bendigo’s share price peaked at $17.10 in late 2017, and its return on equity was below its cost of capital.

“I suppose what I’m really interested in is Marnie, is this good enough? And is it discussed at the board?” Mr Johnson said.

Ms Baker said it was a fair question to ask, but would not comment on discussions in the boardroom. “I feel the appropriate pressure as the CEO and managing director of the bank to continue to improve the performance,” Ms Baker said.

Bendigo will pay a full-franked final dividend of 26.5c a share on September 30, up from 4.5c last year.

Meanwhile, fellow regional lender Bank of Queensland said its group executive for retail banking Martine Jager will take responsibility for ME Bank, and ME’s chief executive Adam Crane would leave the bank. BoQ reports its profits next month, it formally took possession of ME Bank in July.

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