Community banks making fair profits for franchise investors

The aggregate profitability of the community bank network of Bendigo and Adelaide Bank is something the bank has not made public over the years, and something few have taken the trouble to work out by paying the many search fees to ASIC to review the financial statements of each franchise owner (all of which are public companies).

A contact for The Australian newspaper, described as a "retired auditor", has now done the work.

According to the newspaper, of the 238 community bank franchises, funds raised over the 10 years to June 2008 was $112 million; revenue collected by the bank was $116 million; revenue collected by the franchises was $112 million and the franchises produced an aggregate profit of $20 million.

So the return on funds invested across the network works out at around 18 per cent on this basic data.

As has been reported before, the trading position of some community bank franchises is consistently poor.

According to the newspaper 14 of the franchised community banks had negative equity. Another 32 had "poor working capital" and relied on working capital loans from Bendigo Bank. The study put loans from the bank to franchisees at $10 million at June 2008.

The newspaper's contact's study showed that more than 100 community banks opened before 2006 had lost "a good portion of their equity raised", though more than three quarters of these were profitable in 2008. Another 40 that opened between 2006 and 2008 made a loss, The Australian reported, though some had only opened in the last year.