Bendigo Bank CEO Richard Fennell tips RBA interest rate at 3.5 per cent in a year

Richard Fennell’s base case is for three interest rate cuts in 2025, beginning in May.

Bendigo Bank CEO Richard Fennell. Picture: Jane Dempster/The Australian.

CEO SURVEY 2025: FULL COVERAGE

Economy

How would you rate the momentum of the Australian economy as we head into 2025? Official forecasts have Australia trimming interest rates from the first half of calendar 2025, is that consistent with your view? What are you seeing around inflation in your own business?

Bendigo Bank’s base case is for three rate cuts in 2025 beginning in May. By this time next year, we expect the cash rate to be around 3.5 per cent. In terms of our customers, we have seen some deterioration of savings buffers and that is not unexpected in an environment of elevated inflation and higher interest rates from the RBA.

Persistent inflation continues to present a challenge for the Australian economy. Household budgets remain under pressure; however, we expect real disposable income to improve next year when core inflation gets closer to 3 per cent. Businesses too are grappling with the impact of reduced disposable income, with small businesses exposed to discretionary spending bearing the brunt.

From the Bank’s perspective, it’s important we continue to be disciplined on our costs. Our aspiration to improve our cost-to-income ratio hasn’t changed. Cost growth excluding investment and remuneration was below inflation and we are targeting business-as-usual cost growth at no higher than inflation through the cycle.

With inflationary headwinds expected to remain in the short term, particularly from large international technology providers, we are focused on improvements to productivity. One of the ways we are doing that is taking what we have learned with our digital bank Up, where the cost of customer acquisition is very low and customers are onboarded in minutes, and looking to apply that to rest of the business so we can onboard customers faster and at lower cost to the Bank.

Outlook

What excites you heading into 2025? Are you likely to increase, hold steady, or trim your investment spend?

In 2025 we will invest more than ever before. Bendigo Bank enters the New Year in a strong position with momentum on our side. The hard work driven by our transformation program to simplify, modernise and digitise the Bank has created strong foundations for the Bank.

In 2020 we had eight core banking systems and 13 brands. By the end of 2025, we will have one core banking system and two primary brands, Bendigo and Up. The time is right to accelerate the next phase of our development and tap the strong pipeline of demand that exists for our products and services.

The investments we have made and will continue to make in our digital bank Up, the Bendigo Lending Platform and the transformation of our Business and Agribusiness division will address this by making it easier for our customers to do business with us.

We’ve made a lot of progress in reducing complexity, investing in capability and telling our story in recent years. Our success will depend on ability to accelerate our digital capability and deliver improved experiences to acquire, retain and deepen relationships with our customers.

We are really excited about the future at Bendigo Bank. We have a busy growth agenda, a refreshed executive team and a lot of energy.

Reform

As we move into an election year, in your mind, what’s the single biggest lever that can/should be used to lift Australia’s competitiveness or productivity? This could be across any area from labour market, tax reform, training or other areas to encourage investment.

Close to 10 million Australians call the regions home and around two thirds of Australia’s GDP is produced by the regions. Demand for our quality goods and services has never been stronger and yet regional Australians continue to face challenges in the areas of healthcare, education, transport and technology.

Events of the last few years presented many of us with the opportunity to reset and consider what was important to us. Many Australians came to the realisation they didn’t need to live in a major metropolitan area and relocated to regional areas. What this exposed was a significant lack of investment going back decades.

The shortage of affordable housing for workers in rural and regional Australia, particularly for young people, is something we all need to work together to solve. At a macro level, we need more supply. It’s simple to say but not so easy to do.

We need closer relationships between all levels of government and the private sector to deliver rural and regional housing supported by better infrastructure. Addressing this will allow more businesses outside of our capital cities to break free of capacity constraints imposed by an inability to source local skilled resources.

More Australians, including those leading our nation’s biggest companies, should be encouraged to live and work outside our major cities and moreover, more businesses should be encouraged to move or establish a presence in regional communities.

Instead of standing idle while services are withdrawn from the regions, we should be incentivising and rewarding investment in them. Reinvesting in our regions to make them more accessible, attractive, and productive places to live, work and visit will be an important national step.

Geopolitics

Will a Donald Trump presidency have a potential impact on your business or sector (tariffs or streamlined regulation)? Does geopolitics drive a bigger part of your decision-making?

The volatility we have seen in markets in the lead up to, and immediately after, the US election is not unexpected. Longer term we will have to wait and see what the President Elect is able to achieve when he enters the Oval Office in the New Year. Our base case is that Australian households and businesses won’t experience a huge amount of change, but we can’t rule out the prospect of additional inflationary pressures flowing from some of the President-Elect’s key commitments such as tariffs on China, Canada and Mexico. At home, the RBA is on track to get inflation back within the target range of 2 per cent to 3 per cent and I continue to subscribe to the view the next interest rate move will be down.

People

Has your organisation’s approach to flexible working – including working from home – evolved during the year? Is this likely to change further into 2025?

At Bendigo Bank one of our values Be Better Together speaks to our ability to connect and collaborate with each other, build relationships, and contribute to the community that supports our Bank. From July 2025 we expect all staff to spend most of their time in the office.

Bendigo Bank understands that employees value the opportunity to work remotely some of the time and will continue to offer a flexible way of working. The reality is however that the pandemic ended three years ago. We need to shift the conversation away from a return to office and towards office attendance.

Connection and relationships are at the heart of who we are and how we work. Being together and working side-by-side helps us build relationships across the business, create a vibrant culture, and leads to better opportunities for us to collaborate, innovate, and learn.

Technology

Where is your organisation along the AI journey – is it in the developmental stage, or are you now using the technology at scale across your business? If so, are benefits matching the promise?

Bendigo Bank has made great progress on building its digital capability and delivering better experiences for its customers. We have built Australia’s first and best mobile only digital bank and our Digital Lending Platform is delivering time to decision equivalent to the best in market.

Earlier this year the Bank was one of the first global use cases of an AI assisted model to move material workloads from a legacy application to the cloud with an 80-90 per cent reduction in human effort at around 10 per cent of the cost. It was a genuinely exciting development because it means our engineers can focus more of their time on the things that improve the customer experience.

We’re also using AI and machine learning in more conventional ways such as during loan assessments, when identifying unmet product needs and to support the Bank’s compliance and financial crime obligations. Ways we know are safe and are proven to deliver results.