Like Argo Investments (ARG), regional bank, Bendigo and Adelaide (BEN) will pay a higher fully franked dividend for the year to June of 68 cents a share, up two cents after declaring a 34 cents a share final yesterday.
That was despite a weaker statutory profit, but a small rise in the bank’s cash profit, the preferred way of measuring bank profitability and making comparisons.
The bank said cash earnings edged up 1.6% to $439.3 million.
Statutory full-year profit has dropped 2.0% to $415.6 million, with the bank citing the impact of historically low interest rates on home loan growth.
A fall in bad debts (helped by the two interest rate cuts by the Reserve Bank no doubt) helped bolster the result.
Bendigo reported a 35% drop in bad and doubtful debts, to just $44.1 million.
The bank’s net interest margin (NIM) – the difference between the interest rates it pays for cash and the rates it lends at – eased from 2.2% to 2.16% in 2016.
The NIM increased slightly to 2.17% (or 2.17 cents in the dollar) in the second half of the 2016 financial year – a rise of one basis point.
“Many of our mortgage customers are ahead in their loan repayments, while excess loan repayments continued to increase and mortgage offset accounts grew by 11 per cent over the year,” managing director Mike Hirst said in a statement.
He said competition with the big four banks for mortgage growth was “fierce” but the regional bank’s deposit funding base helped deliver a that small increase in the net interest margin over the six months to June 30.
Bendigo said it had “solid” growth in new and existing customer deposits, with retail deposits up 8% during the period.
Bendigo withheld more than half of the latest RBA rate cut of 0.25%, only lowering its standard variable rate by 10 basis points to 5.38%.
Mr Hirst told the market in the statement that ongoing attention to margin and cost management and well implemented business strategies reflected the results reported yesterday.
“Lending growth accelerated in the second half, with costs well managed in this unprecedented low interest rate environment," he said.
“The strength of our retail funding base has helped deliver a half on half increase of 1bp in our net interest margin to 2.17 percent, despite the continuing fierce competition for mortgage growth.
"We continue to leverage the core strength of our retail brand and distribution network, with about 82 percent of funding provided by retail customers. The second half saw solid growth in new customer and existing customer deposits, with retail deposits up 8 percent. At 30 June 2016, our indicative net stable funding ratio sat at approximately 115 percent and liquidity coverage ratio at 118 percent,” he said.
Mr Hirst said the Bank’s unique and valued customer proposition reflected a commitment to providing an outstanding customer experience.
"Our Bank consistently ranks number one in customer satisfaction indexes, and our products are regularly recognised for their competitive rates, being easy to use and understand, and for meeting our customer’s needs. This is a great testament to the outstanding commitment of our dedicated staff,” he said.
“Supported by a significant investment in technology and digital capabilities, we’re firmly focused on maintaining this premium position with our customers by making it easier for them to do business with us.
"We believe that a partnering mindset will allow us to remain at the forefront of customer considerations. This is a clear strategic objective that dovetails into our Bank’s long-held belief that our success will come from focusing on the success of all the stakeholders in our business.
"We are managing our business today as an advanced bank from a Basel II perspective. The substantial investment we’ve made to move to advanced accreditation has increased our risk management capability and improved how we serve our customers, and this continues to be an important focus for our Bank.
"Our Bank’s strong capital, funding and credit position means our outlook remains extremely positive. We’re targeting flat cost growth for the 2017 financial year and our focus on the success of our customers and strategies to deliver balance sheet growth means our Bank continues to be well placed for growth and the challenges ahead," he said. Bendigo shares rose 4.3% to $10.15 yesterday.
Investors will now look to the Commonwealth tomorrow to see if the Bendigo result is any guide,especially on bad debts and the small rise in the net interest margin in the second quarter.
