Bendigo pulls guidance as banks brace for bad debt fallout

Bendigo and Adelaide Bank is the latest financial institution to pull its profit guidance in the face of a wave of bad debts and uncertainty about the economy, as investors brace for bank dividends to be sharply reduced or even cut to zero.

The regional lender on Thursday withdrew its profit guidance for the second half of the financial year, saying this was a "prudent" step given the uncertainty it faced in forming a view on credit losses.

Bendigo Bank managing director Marnie Baker said the bank would support customers in "good times and tougher times."

Bendigo had previously told the market it expected to post mortgage lending growth ahead of the industry's average, business lending in line with rivals, and slightly lower profit margins.

The bank, led by managing director Marnie Baker, said its funding position was strong and it stood ready to support household and business customers during the pandemic.

"Our commitment has always been to support our customers and their communities through both the good times and tougher times," Ms Baker said.

The withdrawal of Bendigo's profit guidance comes as bank dividends have been thrown into the spotlight this month, after the Australian Prudential Regulation Authority (APRA) last week told the boards of banks and insurers to  "materially" cut dividends or consider suspending the payments.

Bell Potter analyst TS Lim said Bendigo's move to withdraw guidance made sense, in a note that also lowered his dividend forecasts for the bank by 19 per cent for this financial year and 13 per cent for next year.

Bendigo shares had slumped 4.7 per cent to $5.90 in late trading on Thursday, as falls in major bank shares also helped to drag down the ASX 200 index.

The big four banks do not typically provide profit guidance, but they have flagged higher bad debts in their next results, which will kick off with ANZ Bank at the end of this month, followed soon after by Westpac and National Australia Bank.

In the lead-up to the results, analysts are estimating the potential bad debt toll facing the major banks, sparking debate about the extent of dividend cuts and the potential for capital raisings.

Macquarie analysts said in a note that Westpac, NAB and ANZ Bank could raise up to $4 billion each in equity over the next 18 months by issuing new stock under dividend reinvestment plans or through capital raisings.

In a note to clients, the analysts estimated major bank loan losses will peak at about $4.5 billion for each bank in the 2021 financial year, and that the lenders would still pay dividends, given their large base of retail shareholders. They also forecast the three banks would raise between $3 billion and $4 billion in capital each, including by selling new shares under their dividend reinvestment plans or through capital raisings.

In contrast, Jefferies analyst Brian Johnson last week forecast major bank dividends would be slashed to zero this financial year (CBA has already declared a dividend for the first half).

Mr Johnson also forecast banks would drop dividend payout ratios from 70 to 80 per cent to 50 to 55 per cent after the crisis has passed.

Other financial services companies to have withdrawn profit guidance in recent weeks include Bank of Queensland and insurer QBE Group, while Insurance Australia Group has maintained its outlook.