Margins trimmed for Community Banks

One way Bendigo and Adelaide Bank plans to manage the expansion in its net interest margin is by reducing the share of the gross margin paid to the private owners of its Community Bank franchised branches.

At present, the bank shares the margin on day-to-day banking services on a 50:50 basis. However, Bendigo now wants to refine that formula.

The bank paid away 32 basis points of gross margin to community banks in the December 2010 half year, up from 29 bps in the prior six months.

Asked about this yesterday, Mike Hirst, the bank's CEO, said that, "As a result of the GFC and the changes in pricing for retail deposits, there's been some pressure put on how that model operates.

"Over the next few weeks, we'll actually be talking to some of our partners about how we address that going forward.  

"This isn't going to be anything new to them. It's something that we've signalled to them over the last couple of years. I think, once we work our way through that, we'll be able to arrest that change."

"I can confidently say that there won't be any individual community banks that are disadvantaged to the point where it's not going to be a bible proposition for them.  

"For those that have just started out, and certainly in the early days as they draw down on their working capital they raised to open the business, there can be a great stress as they put the business on; we'll be assisting some of those."