Bendigo and Adelaide Bank cuts term-deposit rates

Bendigo and Adelaide Bank has broken ranks with rivals and cut term-deposit rates.

Bendigo and Adelaide Bank chief Mike Hirst. Picture: David Geraghty

Bendigo and Adelaide Bank has broken ranks with rivals and cut term-deposit rates, following through with threats to stay out of the market during “irrational” pricing periods to protect margins.

Bendigo’s 10 basis point cut to deposits comes at the end of a bruising week for banks after weak profit results reflected growing margin pressure, rising bad debts and soft revenue trends.

Following Westpac’s update that flagged profit easing to $1.93 billion in the three months to June 30, Morgan Stanley analyst Richard Wiles yesterday said there was a growing risk the bank might have to follow ANZ’s recent decision to cut dividends.

“We assume that Westpac will keep the final dividend flat, half on half, at 94c, but this equates to a full year payout ratio of 80 per cent, increasing the risk of a dividend cut if profitability deteriorates further,” he said.

Commonwealth Bank this week held its annual dividend flat at $4.20 for the first time since the global financial crisis as profits fell in the second half amid steady or declining earnings from all major divisions.

“Generally across the business … conditions felt a little bit tougher in the second half,” said CBA chief Ian Narev after the bank’s 3 per cent rise in full-year profit to $9.45bn, the slowest growth since 2009.

“We’re expecting over the next 12 months pretty much an economy that feels like more of the same but we do see risks to the downside if levels of confidence driven by external events go down.”

To offset margin pressures, banks held back about half of the Reserve Bank’s cut to the cash rate this month and instead hiked various eight to 36-month term deposit rates by up to 85 basis points.

The overall impact on bank margins is unclear after the RBA indicated 12 to 36-month term deposits made up less than 2 per cent of their funding, suggesting it will be dictated by how long they keep the more generous term-deposit rates in the market.

Bendigo cut mortgage rates by 10 basis points after the RBA eased the cash rate to a record low 1.5 per cent.

But after reporting a 1.6 per cent rise in cash earnings to $439m on Monday, Bendigo this week quietly decreased interest rates on term deposits up to one year by 10 basis points. One-year term deposits were raised 5 basis points to 2.65 per cent — well below the big four banks at around 3 per cent.

A Bendigo spokeswoman said the changes to loans and deposits following the RBA’s two rate cuts this year “aim to deliver a neutral impact on our margin”.

Bendigo chief Mike Hirst this week said the bank had a range of options if an irrational deposit war broke out. He said deposits already made up 82 per cent of its funding and the group was one of the few players to satisfy the looming “net stable funding ratio” requirements.

“We’ve got plenty of (funding) lines available in wholesale markets should the competition become irrational on pricing.

“We hear the issue around potential deposit wars coming up but we look back at our past experience through the GFC when that happened and ... I think it’s testament to ... the strength of our retail distribution network to be able to continue to grow that deposit base without hugely impacting on margins.”

After meeting with Bendigo this week, Shaw and Partners analyst David Spotswood said the bank had just raised $700m in residential mortgage-backed securities at 2.99 per cent, which would help offset competition for new mortgages. He said Bendigo indicated it would be “brave” to forecast higher margins.