Bendigo CEO berates Hayne over failure to address competition as first-half profit falls short

Bendigo Bank shares have sunk on a weak interim result as its CEO vents on Hayne’s response to competition issues.

Bendigo and Adelaide Bank CEO Marnie Baker. Picture: Daryl Pinder

Bendigo and Adelaide Bank chief Marnie Baker has supported the Hayne royal commission’s controversial overhaul of mortgage broker pay, despite criticising the report for not doing enough to create a “level playing field” between small and large lenders.

Ms Baker’s comments came as she delivered a weaker first-half net profit that fell short of expectations and led to the largest one-day fall in the stock in about six years.

She said the royal commission and several prior inquiries had not adequately addressed the “oligopoly behaviours” of the big four banks.

“While it wasn’t in the mandate for the royal commission … it does go to the extension of customer outcomes,” Ms Baker told The Australian.

“There is considerable scope for government to supplement the recommendations with pro-competition initiatives, including addressing the ‘too big to fail’ funding cost advantage accessed by the major banks, enhanced risk-weight settings that would result in fairer capital outcomes across all banks and the disproportionate cost of regulation on smaller participants.”

biz graph - bendigo bank net profit and share price

However, Ms Baker does support a range of measures included in the royal commission’s landmark report such as banning mortgage broker commissions.

“There is a structural change that is needed for that industry,” she said. “It wasn’t clear who the broker was working for. It is a strong industry that will adapt, like what we saw in financial planning a few years ago.”

Big banks, including Commonwealth Bank, stand to save hundreds of millions of dollars when commissions they pay brokers are scrapped.

Bendigo sources about a third of its home loans through third-party channels. That includes the bulk through its mortgage managers, where it provides funding and white label loans, and a smaller proportion through mortgage brokers.

Bendigo’s cash net profit fell 2.4 per cent to $219.8 million in the six months to December 31, compared to the same period a year earlier, the bank said in an ASX statement yesterday. The result was lower than consensus estimates for a profit of $224m.

It reflected a fall in net interest income and higher funding costs that spurred a one-basis-point ­reduction in the net interest margin to 2.35 per cent from a year earlier. From the previous six months, the net interest margin, which measures how much banks make from loans after expenses, fell two basis points.

Ms Baker said the bank was navigating a tough environment in which housing credit growth was slowing as she committed to cutting costs and taking market share from rivals.

“We will be finding growth in areas where we can take share from our competitors,” she said.

Higher regulatory, staff and technology costs underpinned a rise in the bank’s cost-to-income ratio by 30 basis points to 57.3 per cent in the first half from the prior six months.

Retail deposits rose and the bank’s common-equity tier-one printed higher at 8.76 per cent. Return on equity fell to 7.94 per cent. First-half earnings in Bendigo’s consumer division fell, but the agribusiness and business banking arms posted increases despite a rationalisation of the commercial loan book.

Bendigo stock tumbled 6.8 per cent to close at $10.39 yesterday, outpacing falls across the sector.

Citigroup analyst Brendan Sproules cautioned that the bank had “gone into reverse”, reflecting lower income growth and a contraction in the business loan book.

“A weak result that was below expectations, leaving investors disappointed,” Mr Sproules said.

Macquarie banking analysts struggled to identify positive earnings drivers for Bendigo.

Bendigo declared an interim dividend of 35c, fully franked.