Confidence conundrum traps Bendigo

A second bank chief executive has highlighted adverse trends in consumer confidence as an impediment to realising business goals and driving growth in earnings.

There is a "clear lack of confidence," said Mike Hirst, CEO of Bendigo and Adelaide Bank, at the bank's half-year results briefing yesterday.

Commonwealth Bank's Ian Narev said much the same last week.

One manifestation of this is the energetic repayment of home loans ahead of schedule, a key factor in a rate of growth in home loans for the Bendigo and Adelaide Bank of 3.2 per cent, compared with 7.1 per cent for the wider banking system.

Key facets of Bendigo's profit could otherwise be labelled as business as usual, with the return on equity and the return on tangible equity tracking sideways at 9.2 per cent and 13.4 per cent respectively.

The interest margin also remained stable at 2.24 per cent, but required a large growth (20 per cent) in higher yielding business loans to achieve this.


The takeover of Rural Finance Corp of Victoria was the main factor behind this growth.

Tactical management of margins helped limit deposit growth to only 1.5 per cent, an interesting outcome at a time when regulatory change emphasises the need to collect retail deposits.

While the bank cut term deposit pricing over the year, Hirst highlighted that customers were making an informed switch toward lower yielding at call deposits.

Hirst said: "We were able to maintain our net interest margin for the half year, reflecting the value we add for customers. This is a solid result given the highly competitive, low-growth environment in which the bank is operating.

"Whilst demand for housing loans is solid we are seeing an increase in customers paying down their debt across all portfolios. While this impacts the Bank's growth, it's fantastic for our customers as they're building equity and greater financial wealth, particularly as interest rates have fallen.

"We've announced a number of market-leading technologies during the year, partnering with specialist companies to provide solutions that customers are asking for, and where we saw we could add value for them."

Hirst said the "bank would continue to pursue opportunities that emerged from the ever-changing financial services environment.

"Our acquisition of Rural Finance and growth of Rural Bank has given us a strong position in the agri-business banking market right across the nation," he said.

On capital, Hirst said there was "a widespread assumption in the industry" that APRA would move to lift risk weights for major banks, to "level the playing field" - as Bendigo and other small banks perceive it - and following on from the recommendations of the Financial system Inquiry.

"The inquiry recognises the environment has changed for many reasons and they've taken a balanced approach in identifying the key issues, including the uneven playing field tilted in favour of larger players," he said.

"We look forward to working with the Government and regulator towards an appropriate resolution of these issues in the short term."

A busy investment program - much of it for digital applications - as well as wages growth lifted cost growth over the half in line with revenue growth, though a "positive jaws" is once more a management target, the CFO, Richard Fennell said.