Margin Squeeze and Rising Costs Challenge Bendigo Bank’s Earnings Momentum

Financial Performance Overview

Bendigo and Adelaide Bank Limited (ASX: BEN) released its half-year financial results for the period ending 31 December 2024, revealing a nuanced performance amid a challenging operating environment. The bank reported cash earnings after tax of $265.2 million, marking a modest 1.1% decline compared to the prior corresponding period and a sharper 9.7% drop from the previous half. Statutory net profit after tax stood at $216.8 million.

Despite the earnings dip, the bank’s balance sheet showed notable strength, with customer deposits rising 5.4% to $72 billion and total lending increasing 3.4%. Residential lending grew 5.3%, supported by strong contributions from branches, the Bendigo Lending Platform, and digital mortgage channels.

Margin and Expense Pressures

The bank’s net interest margin (NIM) contracted by 6 basis points to 1.88%, pressured by higher funding costs amid accelerated lending growth. Deposit mix shifts, including increased balances in offset accounts and longer-term deposits, also contributed to margin compression. Operating expenses rose 5%, driven by wage inflation, technology investments, and amortisation charges related to the ongoing transformation program. Consequently, the cost-to-income ratio increased by 430 basis points to 61.5%.

Transformation Program and Strategic Initiatives

CEO Richard Fennell highlighted the bank’s commitment to its multi-year transformation program, now approaching its final stages after six years. The program focuses on simplifying systems, enhancing digital capabilities, and strengthening risk management. Key milestones include the successful roll-out of the Bendigo Lending Platform, which has supported home lending growth at twice the system rate, and the expansion of the Business Direct team to improve micro-business customer experience.

Digital banking continues to be a growth engine, with the Up digital bank surpassing 1 million customers and posting a 13.2% half-on-half increase in customer numbers. Up’s deposits surged 22.6% to $2.6 billion, while home loans grew substantially to $1.2 billion.

Credit Quality and Capital Position

The bank maintained a strong credit profile, with gross impaired loans decreasing 6.1% to $127.4 million, representing just 0.15% of gross loans. A net write-back of $10.5 million in credit expenses was recorded, reflecting the high quality of the lending book. The Common Equity Tier 1 ratio remained robust at 11.17%, comfortably above the board’s target.

Outlook and Market Positioning

Looking ahead, Bendigo Bank anticipates a more positive economic environment with potential interest rate reductions as inflation eases. The bank expects residential arrears to gradually rise toward longer-term averages but remains confident in its portfolio quality. Bendigo Bank’s extensive regional branch network and unique Community Bank model continue to underpin its customer engagement and community commitment.

Fennell emphasised the bank’s focus on sustainable growth, disciplined cost management, and completion of the transformation program by the end of 2025. The bank aims to maintain mortgage growth above system levels and return Business and Agribusiness lending to growth by FY26, while sustaining Up’s strong trajectory.