Bendigo Bank boss bets on a young Australia growth story
Bendigo Bank boss Richard Fennell says the regional lender is keen to see a relaxation of APRA’s lending rules, amid concerns the financial test is squeezing out good borrowers.
A legion of young savers and soon-to-be homeowners are set to drive a key growth engine for Bendigo and Adelaide Bank, under plans for the regional lender to meet burgeoning regulatory demands.
Bendigo Bank boss Richard Fennell said Australia’s housing affordability squeeze was unlikely to dent the lender’s growth plans, with its flagship youth lender Up growing at a record pace.
Up hit 1 million customers and a $1bn loan book in recent weeks, with new home lending across Bendigo Bank running at almost twice overall system growth.
But Mr Fennell, who took on the top job at Bendigo two months ago, warned there was a “structural challenge” for lenders looking to grow their loan books in the face of runaway house prices.
“It is not easy for many young people to get into the housing market with the cost of housing today, particularly if they want to enter that market with a reasonable deposit,” he said.
Mr Fennell said he backed a call to reduce the Australian Prudential Regulation Authority’s lending buffers, currently at 3 per cent above the mortgage rate, noting the rule restricted good borrowers from accessing bank loans. This comes as a Senate inquiry is running the ruler over APRA’s lending rules, sparking a split between the big banks, with Westpac and CBA calling for no change.
Mr Fennell noted Bendigo was seeing borrowers in good standing, ahead on their loans, with conservative loan-to-value ratios who were being turned away under APRA’s serviceability rules.
“I personally think a more flexible approach to the serviceability buffer would be a good thing,” he said. “At this point of the interest rate cycle, I would be not uncomfortable with a lower buffer.”
Mr Fennell said despite the rapid rise in the cash rate arrears remained muted, noting lending losses were unlikely to rise without higher unemployment.
“I don’t see a situation where we’re going to be going anytime soon near 9 per cent mortgage rates, which would require a cash rate up near 7 per cent,” he said. “I still subscribe to the view that the next interest rate move is likely to be down.”
The Bendigo Bank boss said he was focused on growth, one of the key pillars of his vision for the bank, outlined when he took the top job.
Mr Fennell said Bendigo Bank, one of Australia’s biggest regional lenders, had to be “bold”, noting he came to the CEO role “with a focus on growth”.
He also said Bendigo Bank had to continue to “drive innovation” with a focus on digital products.
But he cautioned this would require Bendigo Bank to focus on its market segments and “focus our attention under the different offerings”.
Mr Fennell said he planned to “build on the foundations, not change the foundations” put in place by his predecessor Marnie Baker, who wrapped up her six years in the top job in August.
“Whether that means more digital capability, whether that means faster growth, more productivity, I don’t want those things to come at the cost of those foundations,” he said.
The Bendigo Bank boss said there was an opportunity to build a bigger lender with more capabilities on the foundations laid out in recent years. This included Bendigo’s acquisition of Up Bank developer Ferocia in August 2021 in a $116m deal.
Up boss Xavier Shay was recently elevated tobecome Bendigo’s chief digital officer.
Bendigo is banking on the lifetime journey of Up’s youth customers, many of whom joined the neobank in its early years and were now becoming serious savers and borrowers as they entered their higher earning years.
Mr Fennell said Up was on track for almost three million customers in the coming five years.
He said Bendigo also had an opportunity to grow its home lending inside the Bendigo Bank brand.
Bendigo has also invested in Adelaide-based home lending platform Tiimley, formerly known as Tic:Toc, snagging a fast paced decision engine for the bank’s mortgage products.
But Mr Fennell said increasing regulatory requirements had put a “not insignificant fixed cost base” at the centre of the business. He said investments in growth and technology could offset that. “That fixed cost base, I think we have an opportunity to leverage over a greater revenue base, but I wouldn’t want to try and do that by putting at risk the foundations that have been built.”
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