Bank bosses back RBA rate cuts to boost economy

The chief executives of Westpac and Bendigo and Adelaide Bank have both backed a cut to the official cash rate when the central bank concludes its two-day meeting on Tuesday to stimulate the national economy and lift consumer spending.

Handing down their first-quarter trading update and half-year financial results, respectively, Westpac chief Anthony Miller and Bendigo chief Richard Fennell said businesses were relying on a quarter of a percentage point cut in the official cash rate, which has been at 4.35 per cent since November 2023.

The chief executives of Westpac and Bendigo and Adelaide Bank have backed a rate cut to lift business activity. Credit: Oscar Colman

“We think this is really important that we move into this next cycle of interest rates moving lower,” Fennell said in an interview with this masthead.

“Not just because borrowing costs are lower for business, but because I think you’ll see consumer sentiment improves. And if consumer sentiment and private consumption and demand picks up, that’s when you’ll see business sentiment improve.”

The comments came as profit reports from both banks disappointed investors, with Bendigo shares plunging 15.3 per cent after it revealed a crunch on its margins. Westpac shares dropped 4.2 per cent after it also revealed a contraction in its margins and weaker profits in its latest quarter.

The Reserve Bank of Australia is widely tipped to cut the cash rate by 25 basis points after its meeting concludes on Tuesday. Money markets have priced in a 90 per cent chance of a cut.

On a $600,000, 30-year mortgage, a quarter percentage point decrease would deliver a $100 saving on monthly repayments, which have risen by $1500 since the RBA began lifting the cash rate from a historic low of 0.1 per cent in May 2022.

Richard Fennell, CEO of Bendigo and Adelaide Bank.Credit: Louie Douvis

Miller said cost-of-living pressures and high interest rates remained challenging for some households, while businesses faced increased cost pressures and lower demand.

“Encouragingly, inflation has eased, and we could see the Reserve Bank of Australia reduce the cash rate as early as tomorrow. This should provide some relief to households and, over time, support business activity,” Miller said, unveiling net profits at Westpac of $1.7 billion – down 9 per cent on the second half of last year.

The bank’s net interest margin, a key measure of profitability, fell 3 basis points to 1.81 compared with the prior quarter.

Meanwhile, Fennell made the comments as he handed down his first results since taking over from former Bendigo chief executive Marnie Baker, who was recently appointed to the RBA board. Bendigo’s half-year earnings triggered an investor sell-off after missing consensus on several fronts, prompting analysts to describe the results as “concerning” and “fairly poor”.

Westpac chief executive Anthony Miller.Credit: Peter Rae

Shares in the mid-tier lender tumbled after Fennell unveiled Bendigo’s cash earnings declined 9.7 per cent from the June half to $265.2 million. The bank’s operating expenses climbed 5 per cent and its net interest margin – a key measure of profitability – fell 6 basis points to 1.88 per cent.

“[Customer] growth, which was slightly higher than we expected, meant we needed to go and fund that, and that came with slightly higher funding costs,” Fennell said. “We needed to go out to the wholesale markets and get some funding from those markets, which are relatively expensive versus customer deposits.”

Those deposits were also less financially valuable to the bank, Fennell admitted, with customers funnelling their savings into offset accounts and longer-term deposits.

The Bendigo chief said the bank did not expect Australians to save their tax refunds, stage 3 tax cuts and energy rebates as much as they had.

“We made some tweaks to our front book pricing late in the half-year … and we’ll have some margin benefits,” Fennell added, indicating that the mid-tier lender was pulling back from intense mortgage pricing competition.

MST Financial analyst Brian Johnson said the bank’s margin on deposits contracted more than analysts had anticipated, while operating costs were higher than expected, and its cash profits came in 5 per cent below consensus.

“The earnings result benefited from a $10 million write-back, so if it weren’t for the write-back, the result would be even lower,” Johnson said.

Barrenjoey head of banks Jon Mott in a note to clients described the moving parts of Bendigo’s results as “concerning”.

UBS analyst John Storey said the bank’s result “reads fairly poorly with a lot of work to do and delivery needed to meet expectations on full-year numbers”.

Bendigo declared an interim dividend of 30¢ a share, in line with the first half of last year while 3¢ lower than the second half of 2024.

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