It’s Bendigo and Adelaide Bank’s time to shine: CEO

Bendigo and Adelaide Bank expects benefits to flow from the financial services royal com­mission.

Bendigo and Adelaide Bank had a 1.1 per cent increase in net profit to $434.5 million.

Bendigo and Adelaide Bank expects benefits to flow from the financial services royal com­mission, as disillusionment with the big four banks spreads and customers consider alternatives.

Announcing a 1.1 per cent increase in net profit to $434.5 million, new managing director Marnie Baker said Bendigo should be able to grow lending in line with the banking system, if not better, proclaiming that the bank’s time “is now”.

“The environment is definitely right for us to succeed, with our customer focus, our customer advocacy and our high trust ratings,” Ms Baker said. “No bank is immune from the heightened attention surrounding the royal commission and other inquiries, but this also presents a strong ­opportunity.”

Despite the profit increase, which was helped by a 14 basis-point surge in its net interest margin, Bendigo was not immune from the industry’s sharply eroding fee income.

The bank’s other income line plunged 9.2 per cent from $310m to $281m, due to lower ATM and transaction fees.

Income from the trading book sagged from $19.8m to $800,000, reflecting the stable interest rate environment in the first half and a second half impacted by the widening spread between the cash rate and bank bills. The interest margin, which climbed 14 basis points to 2.36 per cent, was a more positive story.

Bendigo Bank cash earnings $ m

A repricing of the mortgage book helped offset higher funding costs, and the bank actively managed the balance between margin and volume growth in lending and deposits.

“Despite the second half being influenced by negative income growth, our continued focus on prudent cost management in a challenging environment has seen our cost-to-income ratio continue to decrease to 55.6 per cent for the financial year,” Ms Baker said.

“Looking forward, we don’t anticipate a material change in our cost-to-income ratio as we focus on accelerating revenue growth.”  After hitting an intraday high of $11.55, Bendigo finished the day 4c lower at $11.39.

Directors lifted the final dividend by 1c to 35c, making for an annual payout of 70c, up 2c. Macquarie analyst Victor German said the bank’s 7 per cent dividend yield should support the share price in a challenging environment.

Bendigo would also benefit from about $30m in extra first-half revenue from the higher mortgage rates it had already implemented.

“(But) the weak underlying performance trends in the second half, ongoing challenges in retail banking — slowing volume growth and competitive pressures — and potential headwinds from HomeSafe mean we remain cautious on the outlook and maintain a neutral recommendation,” Mr German said.

Ms Baker said Bendigo continued to lead the industry with its funding position, increasing its options for both organic and inorganic growth.

More than 80 per cent of ­funding is sourced from retail ­customers.

The bad and doubtful charge of 11 basis points was in line with Bendigo’s four-year average.

The bank’s common equity tier-one capital ratio lifted by 35 basis points to 8.62 per cent.

“This means we continue to be extremely well-placed to meet APRA’s unquestionably strong capital requirements,” Ms Baker said.

“Our organic capital growth reflects strong profitability, a stable balance sheet and a move to lower risk exposures.”