Profit halved at "world class" Bendigo Bank

Bendigo and Adelaide Bank managing director Mike Hirst said his ambition was to have his institution recognised as the country's leading regional bank and to be the obvious alternative choice to banking with the big four.

In support of this claim Hirst pointed out that the bank has market-leading customer satisfaction scores and a "world class" net promoter score.

Hirst said: "That positions us very well. We can take advantage of that.

"Over the past 18 months the biggest thing that has been destroyed in financial services, apart from capital, is trust. I don't think that is true of us."

Yet based on the numbers presented yesterday in the bank's 2008/09 financial report, Bendigo and Adelaide is failing to take advantage of its happy customers.

The number of products per customer is an average of 1.9. The majors do better than that and world's best practice is up around five or six.

In the year to June the size of the bank's residential loan portfolio fell four per cent from $29.8 to $28.6 billion.

New residential loan approvals fell 1.8 per cent from $6.5 to $6.4 billion.

The bank did better with business lending. The business loan portfolio was up 6.7 per cent from 5.7 to 6.1 per cent.

New non-residential loan approvals were up 17.9 per cent to $2.7 billion.

Deposits grew just 1.6 per cent, up from $31.4 to $31.9 billion over the year. Retail deposits, which make up the bulk of the deposit book, were up 20 per cent while wholesale deposits were down, deliberately, by more than 50 per cent.

Hirst said the government deposit guarantee made things difficult in the middle market. "We were not prepared to pay the guarantee."

Third party mortgage distribution (a specialty of the old Adelaide Bank) was "put on hold" because of disruption to the securitisation market. Pre-tax profit from the division fell from $85.9 million in the December half to $26.4 million in the June half.

Based on this modest operating performance, the bank's revenue was up 0.4 per cent to $873 million, but down over the half year.  

Overall, the bank reported net profit of $83.8 million, down 57.7 per cent from the previous year.

Cash earnings of $182.2 million were down 24 per cent and cash earnings per share were down 43.4 per cent to 62.9 cents.

Cash earnings were calculated after adjusting for a number of significant items. The main ones were a $93 million "ineffective cash flow hedge" and $41 million of integration costs involved with the acquisition of Adelaide Bank and Macquarie Margin Lending.

The bank's return on equity, measured on a cash basis, fell to 4.4 per cent in the June 2009 half year from 8.1 per cent in the December 2008 half year. Over the full year the ROE fell to 5.8 per cent from 12.3 per cent.

In context this may be an outstanding result. One sell-side analyst suggested Bendigo and Adelaide Bank may be "the world's best regional bank" and that it managed its way through the financial crises of 2007 and 2008 in admirable fashion.