By David Ross
Delivering her final earnings update, Bendigo and Adelaide Bank chief executive Marnie Baker said the transformation of the regional lender into a digital powerhouse was reflected in its $562m cash profit.
Its full-year earnings update topped analysts’ expectations despite a 2.6 per cent decline, and the lender and its customers were headed into a softer economic cycle in far better shape than before, she said.
Ms Baker said almost 40 per cent of Bendigo Bank’s customers were more than 12 months ahead of their repayments schedule, with as many as 85 per cent holding a buffer.
“It doesn’t surprise me, there was a lot of stimulus that was put into the economy and into people’s pockets during Covid,” Ms Baker said. “Buffers were well and truly built up over that time.”
Bendigo Bank’s residential lending arrears were up only 8 basis points over the year, which was well below industry averages.
Ms Baker, who hands over to incoming chief executive Richard Fennell on August 31, said despite the low arrears, it was clearly tougher for homebuyers to access the housing market.
She said interest rate buffers and prudential lending rules that “made it more onerous for people to get a loan”.
Ms Baker, who took over as CEO in 2018, said she was concerned that more Australians were being pushed outside the formal banking sector and into the non-bank lending space.
“That’s fine in better times, but it does worry me that those people can potentially get themselves into trouble,” she said.
There was an 8.7 per cent increase in bad loans at Bendigo Bank to $135.7m, reflecting 0.17 per cent of all lending.
E&P banks research executive director Azib Khan said the bad debts charge was “low quality”.
Credit expenses of $9.9m were 71 per cent down on the prior period.
The business and agribusiness portfolio saw a $9.3m net release in the period driven by a reduction in provisions.
Bendigo Bank said the figure reflected a change to its view of restructured loans for its business and agribusiness portfolio.
The bank said it expected asset quality to remain stable in the year ahead, with improvements in its business and agri lending portfolios partially offset by worsening arrears levels across its consumer lending book.
Bendigo Bank said it expected interest rates would “remain at current levels into the next calendar year as inflation remains persistent”.
Statutory profit lifted 9.7 per cent in the period, hitting $545m, crimped by $34.4m in restructuring costs among other writedowns.
Ms Baker said Bendigo Bank was showing it had been fundamentally restructured over recent years.
The bank has walked away from investments in HomeSafe Solutions and non-bank lender Elders, while doubling down on a digital foray through Up – a fintech bought in a deal with Ferocia and home lender Tiimley.
Ms Baker said the lender had grown more “disciplined” around revenues.
“We’re going to those markets where we believe we can play or where we have an advantage above others,” she said.
Ms Baker said Bendigo Bank was “a lot easier to understand from a cost perspective”, with much of the complexity pulled out over recent transformations.
She said this would help Bendigo Bank hit its 50 per cent cost-to-income target and lift return on equity above the cost of capital.
Customer numbers rose 9.1 per cent over the year to 2.5 million.
Up posted a 29 per cent jump in customer numbers to 920,000 accounts.
Ms Baker said Up was delivering “very healthy returns”.
Customer deposits grew across the broader group, 3.4 per cent higher over the year.
This came as Bendigo repaid the last of the Term Funding Facility in June.
Total lending grew 2.6 per cent in the period, led by residential lending volumes.
However, Bendigo’s net interest margin slipped closing out the period at 1.9 per cent down 4 basis points on last year.
The lender’s quarterly margins showed a step up across the second half of the financial year to 1.94 per cent.
Bendigo said this was driven by lending and deposit pricing, but this was a 13 basis points improvement on levels posted by Bendigo in the first half of the financial year.
Wilson Asset Management lead portfolio manager Matthew Haupt said Bendigo had shown a strengthening lending margin with “not much to dislike”.
But he cautioned that the bank and its rivals had shown they were at peak earnings.
“It’s as good as it gets for this part of the cycle now,” he said.
Bendigo declared a 33c final fully franked dividend, taking total returns to 64c
Bendigo shares closed down 0.48 per cent or 6c to $12.34.
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