Competition concerns over ANZ’s $4.9bn Suncorp bid: Bendigo Bank

Regional lender Bendigo and Adelaide Bank warns of competition concerns over ANZ’s $4.9bn takeover bid of Suncorp Bank after ‘irrational’ price wars dented its profit.

Bendigo and Adelaide Bank CEO Marnie Baker. Picture: Jane Dempster/The Australian

Bendigo and Adelaide Bank has warned of competition concerns over ANZ’s $4.9bn takeover bid of Suncorp Bank, after calling out “irrational” price wars which have sliced millions from its cash earnings.

After reporting a 5 per cent fall in interim cash earnings to $268.2m on Monday, Bendigo Bank revealed its retail bank had suffered a profit slump amid a battle for borrowers and deposits.

Bendigo Bank chief executive Marnie Baker said she remained opposed to ANZ’s acquisition of Suncorp Bank, as it would only worsen the capacity for smaller lenders to compete in the market.

“I think it wouldn’t be good for consumers, it means there’s less alternative to the major banks and I don’t think that’s good,” she said.

“There’s a lot of consumers who don’t wish to bank with a major bank or prefer to bank with a regional or smaller bank.”

Speaking on the sidelines of the bank’s results in Sydney, Ms Baker was awaiting the outcome of the Australian Competition Tribunal which is set to rule on ANZ’s takeover on Tuesday.

Bendigo Bank has made a number of overtures to Suncorp for its banking arm, which would have been the latest in a number of roll-ups into the regional bank, which boasts a headquarters in the Central Victorian city Bendigo as well as footprints in Ipswich and Adelaide.

The bank has also weighed into the fight, putting its opposition on the record, with Ms Baker noting she was “concerned about competition and I still remain concerned”.

But tough competition between the banks, with Ms Baker nodding to 10 lenders in the market fighting for market share, saw Bendigo Bank’s retail operation post a 9.9 per cent cash earnings slump to $250.8m “due to intensity in competition on both sides of the balance sheet”.

The war for deposits from cash-strapped lenders along with a bruising battle over mortgage pricing has seen Bendigo Bank’s margins crunched while costs, driven by inflation, have ticked up.

“Competition for lending and deposits remained high and similar to our peers, but to a lesser extent, we have not been immune to the margin impacts,” Ms Baker said.

Bendigo said it was prioritising volume and margin, as well as growth in its lower cost digital mortgages operations.

This saw net interest margin squeezed 15 basis points over the half, down to 1.83 per cent.

Bendigo Bank also reported a tick up in residential lending arrears, but noted overall credit quality remained sound across its loan book.

Ms Baker said Bendigo’s margin benefits from the rise in the cash rate have been slashed as it elbowed out rivals to load up on cash ahead of the roll off of the Term Funding Facility.

“We made a conscious decision to run liquidity at a higher level in order to pre fund the upcoming maturities,” she said.

ANZ will find out on Tuesday if its $4.9bn takeover of Suncorp will be allowed to go ahead. Picture: Kelly Barnes/NCA NewsWire

Ms Baker said Bendigo was on track to repay the entirety of its Term Fund Facility loans, cash borrowed from the Reserve Bank during the Covid-19 pandemic, by June 2024.

Customer deposits lifted 3.5 per cent in the six months to December 31, helping Bendigo lift its liquidity coverage ratio to 151.4 per cent.

Total lending across the bank was down 0.7 per cent, with residential lending down 0.1 per cent.

The cost to income ratio across the bank also saw a 230 basis points worsening in the first half, hitting 57.8 per cent, falling short of Bendigo’s 50 per cent goal.

Net impaired assets were slashed by 17.7 per cent in the six months to December to $55.7m, while business and agribusiness lending saw a $68m reversal in credit expenses.

However, residential arrears lifted 6 basis points to 0.52 per cent.

Bendigo Bank said it expected bad debts to trend upwards and move towards longer-term averages over time.

Ms Baker said unemployment was likely to rise in the short term, but noted Australia’s economy was likely to “outperform its peers over time”.

Bendigo Bank said it expected the cash rate to remain at current levels for the remainder of 2024, while inflation pressures would persist at a moderating pace.

“Perhaps we’ll start to see this improve in the following calendar year, we’ve got a bit longer to go,” Ms Baker said.

Bendigo’s investments in digital lending now see the arm account for 16.3 per cent of all residential lending settlements in the half.

Ms Baker said revenue challenges identified in the last half had “sharpened our focus on accelerating investment in channels that drive profitable growth” with the bank announcing a range of new investments, as well as moves to walk away from a number of deals.

The $116m acquisition of Ferocia in 2021, which saw Bendigo take ownership of neo-bank Up, has seen Bendigo swell customer numbers, with digital deposits up 28 per cent.

Ms Baker said customer growth was strong, with year-on-year increases up 8.3 per cent to 2.47 million.

Bendigo Bank said it was exiting its relationship with Elders, as well as divesting its shareholding in Homesafe Solutions, and moving forward with the sale of Bendigo Super.

But Bendigo Bank said it was investing in digital lending and deposits, as well as its business and agribusiness lending arms.

Bendigo Bank said a pilot trial of its digital lending platform had seen over 200 applications, with initial results showing “significant improvements in credit decisioning”.

The bank said it planned to roll out the platform to all brokers by April this year, replacing Adelaide Bank front book and enabling the next phase of retiring Adelaide Bank systems.

The bank declared a 30c interim dividend, up 3.4 per cent from 29c a year earlier.

Shares in Bendigo slumped 1.72 per cent to close at $9.72, with analysts noting the bank had presented a “soft result”.

Citi analyst Brendan Sproules said Bendigo Bank had presented a “disappointing core earnings” result. But Barrenjoey analyst Jonathan Mott said the bank had reported a “reasonable result in challenging conditions”.

Originally published as Competition concerns over ANZ’s $4.9bn Suncorp bid: Bendigo Bank