Bendigo Bank sees jump in Victorian loan deferrals

The Victorian lockdown has triggered a jump in loan repayment deferral requests at Bendigo Bank.

Bendigo Bank chief executive Marnie Baker ahead of the company’s half-year results on Monday. Picture: Aaron Francis/The Australian

The Victorian lockdown has triggered a jump in loan repayment deferral requests at Bendigo Bank, chief executive Marnie Baker has revealed as she warned the economy faces “a tough few years” ahead in the wake of the COVID-19 crisis.

Speaking to The Australian after the bank announced it would defer its final dividend decision following a 27 per cent slump in cash profit to $301.7m for the 12 months through June, Ms Baker said the portion of the loan book with deferred repayments had declined from a peak of 25,000 accounts, but that more of its Victorian customers had requested repayment holidays in recent weeks.

Loan deferrals had reduced to about 20,000, or 10 per cent of the total loan book at June 30, Ms Baker said, comprising 9 per cent of the home loan book and 12 per cent of the business book.

“We did see that number reduce and some customers were actually going back to repayments. With Victoria, we’ve seen (deferral requests) increase slightly again, but still, it’s dropped (overall),” Ms Baker said.

Of the bank’s residential repayment holidays granted as at the end of June, 40 per cent were for its Victorian customers, compared to 22 per cent in NSW and 18 per cent in Queensland. For commercial lending deferrals, more than half — 52 per cent — sat in its Victorian accounts.

Bad and doubtful debts of $168.5m were in line with expectations following the $127m COVID-19 provision the bank took in May. That provision was reviewed but remained unchanged at year end, Ms Baker said.

Amid the challenging market outlook, Bendigo declined to provide guidance for fiscal 2021, while the decision to defer the dividend was driven by the need to act prudently around preservation of capital, Ms Baker said.

“We came into this pandemic with a really well capitalised and strong balance sheet. And we continue to have that but with the uncertainty and the collective provision overlay that’s been applied, the board really had to think very prudently and act very prudent around preservation of capital during this time.

“We balanced the needs of customers and shareholders and, of course, took into account APRA’s industry guidance on capital management, and made the decision to defer any dividend at this time.”

Bendigo shares dropped more than 5 per cent shortly after the market open, to $6.62.

Acknowledging the likely disappointment among retail shareholders relying on dividend for income in the low interest rate environment, Ms Baker said the bank would provide an update on the payout only when the market outlook became more certain.

The earnings slump was driven by the bank’s COVID-19 provisions but it was the higher costs that were the biggest shock of the result, Citi banking analyst Brendan Sproules said. Costs over the year rose to $1.022bn, cost growth surging 10 per cent, half on half.

Consultancy (technology investment) and staff costs were the main driver of the “enormous growth”, Mr Sproules told clients.

Headline costs also benefited from further software impairment being taken below the line ($122m for the year), he said.

Cash earnings were 5 per cent below Citi’s estimates, while statutory net profit, at $192.8m, was 20 per cent below its forecasts.

“Bendigo continues to target a 50 per cent medium term cost-to-income ratio, with positive JAWS in fiscal 2021. However, we expect management credibility to be low given the magnitude of the second-half earnings miss. The dividend decision is certain to disappoint their large retail shareholder base,” Mr Sproules said.

Total income rose 1 per cent to $1.61bn over the year, while lending, at record levels and above system growth, increased 5.1 per cent to $65.3bn, driven by strong residential lending growth of 9.4 per cent, 3.6 times system.

Net interest margin fell 3 basis points on the prior corresponding period to 2.33 per cent.

Looking ahead, Ms Baker said the cessation of the JobKeeper program, slated for March next year, and the loan deferral holidays, “is on everyone’s mind at the moment”.

“There’s about 3.3 million people on JobKeeper at the moment. As that comes off, then you have the potential for those people to fall into JobSeeker or an equivalent sort of program,’’ she said.

“There’s probably going to be about two million people looking for jobs, and it’s going to take some time to create the activity and jobs for all those people. The last time we saw something like that it took about a decade to find those jobs.”

The next few years will be tough for the economy, but banks have a role to play in helping the recovery by putting credit out into the system, Ms Baker said.

“The quicker we can build confidence and get that activity going, the quicker that we will see this transition to recovery.”