A well-developed branch network and strong credit growth drove a 41 per cent profit increase for Bendigo and Adelaide Bank, setting a good omen for upcoming earnings reports from the banking sector.
Net profit for the 12 months to June 30 reached $342.1 million, thanks to strong growth in deposits, mortgage and business lending, chief executive Mike Hirst told AAP.
Cash earnings increased 10.8 per cent to $336.2 million and lending growth touched eight per cent over the 12 months.
Lending growth was the second strongest behind National Australia Bank’s 16 per cent, and compared to system lending growth of five per cent.
“Our (branch) network is still maturing. We’ve built a pretty large network over the last 10 years and some of that is starting to come through,” Mr Hirst said of the lending growth.
Strong growth in deposits and the thawing of the local securitisation market meant Bendigo gained greater access to funding, allowing the bank to expand its loan book, he said.
The bank’s retail deposits fund 75 per cent of its loans. In 2010/11 they grew by 8.9 per cent to $3 billion, with Bendigo retaining over 80 per cent of the term deposits it attracted despite adopting a less aggressive pricing strategy than its rivals.
Mr Hirst said the strong inflows of deposits into Australian banks over the past two years meant they were well-placed regarding their future funding needs and would not be threatened by the fallout from the US government’s credit downgrade and tumbling financial markets.
“I wouldn’t rule it out that there might be increased funding costs, going forward, but at the moment it doesn’t look too bad.”
Mr Hirst hosed down speculation that Bendigo may merge with Bank of Queensland and said the bank hoped for a credit rating upgrade from Standard & Poor’s – from BBB plus to A minus in line with Fitch Ratings’ grade.
Bendigo’s rivals have suffered weak credit growth over the past 18 months and a sector-wide sustained uptick is keenly sought by the market as a precursor for future earnings growth.
Morningstar Equities analyst David Ellis said Bendigo’s lending growth, stable margins, good credit quality and low arrears were good omens for the wider banking sector.
“The home loan arrears are up a little bit but not significantly, and that’s a major worry for the big banks, particularly Westpac and CBA (Commonwealth Bank).”
Mortgage arrears – the proportion of the bank’s loans that have missed or late repayments – were at 1.18 per cent in June, below the rate of July 2009.
Business arrears were 2.49 per cent in June, while credit card and personal loan arrears fell.
Mr Ellis said that while Bendigo’s profit result surprised the market on the upside, its 30 cent per share final fully franked dividend was lower than anticipated.
Total dividends for 2010/11 were 60 cents, up from 58 cents in the previous financial year.
Bendigo’s shares fell 12 cents, or 1.49 per cent, to $7.95 compared with a general market decline of almost three per cent.
