Bendigo and Adelaide Bank in $300m capital raising as first-half profit dips

Bendigo and Adelaide Bank has kicked off a $300m capital raising and cut its interim dividend to boost its balance sheet.

The Bendigo Bank branch in Carlton in Melbourne: Picture: Bloomberg

Bendigo and Adelaide Bank has kicked off a $300m capital raising and cut its interim dividend to boost its balance sheet, as first-half profit dipped 2 per cent.

Cash net profit for the six months ended December 31 printed at $215.4m, the bank said in a Monday statement to the ASX. Analysts had expected the result to come in at about $212.5m.

Bendigo’s shares are in a trading halt as it conducts a capital raising to institutional and retail shareholders.

Rival Bank of Queensland tapped investors for $275m in an equity raising in November.

Bendigo managing director Marnie Baker said the bank had made a “difficult decision” to cut its dividend to 31 cents from 35 cents last half and was raising capital to “support growth” and bolster its regulatory capital buffers.

She added the bank was seeing a “steady recovery” in the housing market and official interest rates at record lows would support economic growth.

Bendigo and Adelaide Bank managing director Marnie Baker. Picture: David Geraghty.

Bendigo last year found itself in hot water when the corporate regulator commenced proceedings in the Federal Court concerning unfair terms in small business contracts.

As part of the capital raising, shares will be issued to institutional investors at $9.34 apiece, a 9 per cent discount to an adjusted share price of $10.26, to take into account that new stock will not receive an interim dividend.

It comprises a $250m placement to institutions and a $50m non-underwritten share purchase plan for retail shareholders.

Bendigo said the raising would add 67 basis points to 81 basis points to its level two common equity tier one capital ratio.

The raising had been tipped by The Australia’s DataRoom in November.

The bank’s shares closed at $10.57 on Friday and remain in a trading halt while the raising is conducted. The stock is down from its recent peak of $11.66 in July last year.

Bendigo’s total lending grew 2.8 per cent to $62.9 billion, up 2.8 per cent on the prior corresponding period and above the sector’s growth rate in the six months ended December 31.

Residential lending was up 7.7 per cent but agribusiness lending fell 6.8 per cent, influenced by “seasonality and the ongoing multi-year drought”.

The net interest margin - what the bank earns on loans minus funding and other costs - rose 2 basis points to 2.37 per cent from six months earlier, reflecting “active management” of margin and volume for lending and deposits. After three cuts to official interest rates last year, major and regional banks not passing on the entire reductions to customers as they blamed balancing the interests of savers and borrowers.

Net interest income was higher over Bendigo’s first half but non-interest income, which reflects fees, fell.

Operating expenses climbed 5 per cent to $487.4m for the first-half on the prior corresponding period, due to factors including higher staff costs and investment spend. That excluded pre-tax software impairments of $87.1m and software accelerated amortisation charges, following reviews of the bank’s software assets.

On the outlook, Mr Baker said while there were challenges the bank expected to continue to grow its mortgage lending at a faster rate than the industry.

“The market faces heightened regulatory focus, below average business confidence, increasing frequency and severity of weather events due to climate change, constantly changing and heightened customer preferences, global trade tensions and the longer-term impacts of drought, bushfires and Coronavirus,” she said.

“We expect our mortgage lending growth rates to continue to exceed system, our small business portfolio to continue to grow at similar rates and our commercial real estate business to grow.

“Accelerating investment in partnerships, reducing complexity, automation and risk and compliance will ensure improved scalability of the business and flexibility to support sustainable future growth.”