Margin Pressure and Rising Costs Challenge Bendigo Bank’s Profit Growth
Bendigo and Adelaide Bank reported a modest dip in cash earnings for the half year ended December 2024, offset by strong residential lending growth and a maintained fully franked dividend. The bank’s strategic investments and digital transformation efforts continue amid margin compression and rising expenses.
- Cash earnings down 1.1% to $265.2 million year-on-year
- Net profit after tax declined 17.5% to $216.8 million
- Residential lending grew 5.3%, total lending up 3.4%
- Customer deposits increased 5.4%, with digital deposits surging 27%
- Interim dividend maintained at 30.0 cents per share, fully franked
Financial Performance Overview
Bendigo and Adelaide Bank Limited released its half year results for the period ended 31 December 2024, revealing a nuanced performance amid a challenging economic backdrop. Cash earnings after tax slipped slightly by 1.1% to $265.2 million compared to the prior corresponding period, and were down 9.7% on the prior half. Statutory net profit after tax declined more sharply by 17.5% to $216.8 million, reflecting the impact of non-cash adjustments and other accounting factors.
Despite these pressures, the bank declared a fully franked interim dividend of 30.0 cents per share, consistent with the prior year interim dividend but down 9.1% from the previous half. This dividend maintenance underscores the board’s commitment to shareholder returns while balancing capital preservation.
Lending and Deposit Growth Amid Margin Compression
Bendigo Bank demonstrated robust lending growth, with total gross loans rising 3.4% to $83.6 billion. Residential lending was a standout, increasing 5.3% to $65.2 billion, driven by higher settlement volumes and supported by the rollout of the Bendigo Lending Platform to brokers and retail channels. Conversely, business and agribusiness lending experienced slight declines, reflecting competitive pressures and seasonal factors.
Customer deposits grew 5.4% to $72.0 billion, with a notable 27% surge in digital deposits, highlighting the bank’s success in expanding its digital footprint through the Up digital bank and other channels. The deposit mix shifted towards higher-cost savings and term deposits, influenced by customer preferences and offset account growth.
Margin and Expense Dynamics
Net interest margin (NIM) contracted to 1.88% from 1.96% in the prior half, pressured by increased funding costs and competitive lending rates. The bank’s funding costs rose partly due to the repayment of the Reserve Bank of Australia’s Term Funding Facility and a shift in deposit composition. Operating expenses increased 5.0% to $598.4 million, driven by inflationary pressures, higher technology and software amortisation costs, and a planned rise in investment spend focused on transformation initiatives.
Investment spend, including risk and compliance, foundational technology, and asset lifecycle management, rose modestly, reflecting the bank’s ongoing commitment to digital transformation and regulatory compliance. Staff costs increased due to higher full-time equivalent numbers and salary adjustments, partially offset by productivity gains.
Credit Quality and Capital Position
Credit conditions improved, with a credit reversal of $10.5 million reflecting reduced collective provision overlays and updated macroeconomic assumptions. Impaired assets declined 6.1% to $127.4 million, underscoring resilient credit quality despite economic uncertainties. Total provisions for credit losses stood at $368.5 million, representing 0.44% of gross lending.
The Common Equity Tier 1 (CET1) ratio slightly decreased to 11.17% but remains comfortably above the regulatory minimum and the board’s target of 10%. Liquidity metrics also remained strong, with a Liquidity Coverage Ratio (LCR) of 135.2% and a Net Stable Funding Ratio (NSFR) of 118.0%, both exceeding APRA’s requirements.
Strategic and Leadership Developments
The bank continued to advance its transformation agenda, including executive appointments such as Richard Fennell as Managing Director and CEO, and the establishment of new divisions focused on brand, marketing, and digital capabilities. The Bendigo Lending Platform’s expansion and digital deposit growth reflect a strategic pivot towards technology-enabled customer engagement.
Notably, the sale of Bendigo Superannuation Pty Ltd was completed, streamlining the group’s structure and contributing a non-cash gain. The bank also maintained a strong Net Promoter Score, significantly outperforming industry averages, indicating solid customer loyalty and satisfaction.
Outlook Considerations
While Bendigo Bank’s half year results show resilience, the margin compression and rising expenses highlight ongoing challenges in the banking sector. The bank’s focus on digital transformation and disciplined capital management will be critical to sustaining growth and profitability in a competitive environment.
Bottom Line?
Bendigo Bank’s steady lending growth and dividend maintenance come amid margin pressures and rising costs, setting the stage for a pivotal second half as economic conditions evolve.
Questions in the middle?
- How will Bendigo Bank manage margin compression amid rising funding costs and competitive lending?
- What impact will ongoing investment in digital platforms have on future earnings and customer acquisition?
- How might macroeconomic uncertainties, including interest rate shifts and housing market trends, affect credit quality and provisions?
