Bendigo bank shares surge 8pc on higher profit

Improved margins and mortgage repricing have helped drive Bendigo’s full-year cash profit 4.2 per cent higher.

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

Shares in Bendigo and Adelaide Bank surged 8 per cent yesterday as improved margins and mortgage repricing helped drive the bank’s full-year cash profit to $418.3 million.

In announcing the results, managing director Mike Hirst said it was an “unusual time” in banking, as lenders strive to walk the tightrope between meeting regulatory needs and addressing the trust issues facing the sector.

“It’s an interesting situation when you’ve got the government, rightly in some cases, concerned about the cultural issues that might be happening across big business generally, not just in banking, and also regulatory intervention forces you to do things you’ve been pilloried for,” Mr Hirst said. “There’s no doubt the industry is most challenged on the trust front, but that’s where we excel,” he said. “That’s playing through in the numbers and in the growth of our brand.”

Despite the public losing faith in the scandal-ridden sector, a banking royal commission was not the answer, Mr Hirst told The Australian.

“I don’t know what a banking royal commission would achieve,” he said. “We had a root-and-branch inquiry into the financial system a few years ago and there’s been upwards of 30 inquiries into banking over the last three years. What’s a royal commission going to discover that those inquiries haven’t discovered or that ongoing regulation doesn’t throw up?”

For the year to the end of June, the bank’s cash profit rose 4.2 per cent. Mr Hirst said it was a strong result and that the CET1 ratio of 8.27 per cent probably surprised on the upside.

“The need to get to 8.50 by 2020 to meet the new APRA requirements looks like it’s not going to be all that difficult for us,” Mr Hirst said.

While the net interest margin fell by one basis point to 2.22 per cent over the year, it rose eight basis points in the second half, to 2.26 per cent, as the bank responded to new regulatory caps on interest-only loans and investor loan growth. The bank’s exit margin was 2.34 per cent. The improving margin trend in the second half was better than the market expected, helping to push the share price higher. The bank noted the key factor for margins going forward would be the competitive dynamics, “and as we try and deliver growth on an ongoing basis at profitable prices, where can we set our price to make sure that’s achievable,” chief ­financial officer Richard Fennell said.

This is a share price for Bendigo

Last month, Bendigo lifted interest rates on investor loans for new and existing customers and cut variable rates on new principal-and-interest loans, as the bank looks to meet regulatory targets restricting riskier loans to investors and interest-only mortgages.

Despite continued concerns about the heat in the property market, particularly from the investor segment, Mr Hirst believes rapid house price growth in Sydney and Melbourne in recent years is more to do with migration than speculation and the answer to housing affordability lies in the regional cities, which can pick up the overflow as higher prices push people further out.

“A lot of it has been driven by population growth, which wasn’t the case in Ireland for instance, where it was really just about speculation,” Mr Hirst said. “From 2000 to 2010, Sydney house prices didn’t do much, now they’ve gone gangbusters catching up. Melbourne’s been a bit steadier but it’s also had significant population inflow.

“There are as many factors that mitigate concerns about property prices as there are that fuel them.”

While arrears were at historical lows, the bank said, certain pockets in Western Australia and Queensland showed more stress than other areas.

The bank will pay a final dividend of 34c a share, bringing the full-year dividend to 68c.