Shares in Bendigo and Adelaide Bank sagged by nearly 5% at yesterday after shareholders were told at yesterday’s annual meeting that times were tough and challenging – and that was in effect a profit warning, although those words were not used.
The shares fell to a day’s low of $11.38, down 4.8% and the lowest they have been since July after CEO Mike Hirst said lending limits on some types of home loans (interest only) had made it harder for the bank to compete. Yesterday’s fall accounted for all of the fall for October.
His comments came two days before the National Australia Bank reveals its full year earnings tomorrow. Rival ANZ did not mention the impact of the APRA constraints or competition in its release last Thursday.
That loss for Bendigo was against a positive trend for banks last month – the CBA, Westpac and NAB all adding between 3% and 4%. ANZ rose a more modest 1.1%, but Macquarie jumped 8.2%.
In his address yesterday Mr Hirst said the lending limits from APRA had hit the bank’s growth momentum.
He said the caps on investor and interest only lending from Australian Prudential Regulation Authority had forced Bendigo to “slam on the brakes” and “meant some of the growth momentum we experienced in the year just gone has been interrupted”.
“While that reaction was necessary to ensure we hit the APRA targets in the time frame we were given, it has meant some of the growth momentum we experienced in the year just gone has been interrupted,” he said.
"We expect total balance sheet growth to be relatively flat in the first half as we maintain our long held tenet of only writing business at prices that reflect the risk being taken," he told the AGM in Bendigo.
“Another factor challenging the industry is the area of fees and charges, with the recent example of the removal of foreign ATM fees by some of the larger players in the industry being a case in point,” he says.
“These changes will have a negative impact on all banks’ fee income and we are not immune.”
Mr Hirst told the meeting the bank expects minimal increases in costs of about 2% compared top the same half last year.
Bendigo’s first-half cash profit for 216-17 was steady at $224.7 million. Analysts will be eying that figure in their updates.
Fairfax Media reported that stockbroker Shaw and Partners reacted to these comments by slapping a “sell” recommendation on the stock and slicing its price target by 57¢ to $11.19.
UBS reacted by downgrading earnings per share forecasts by 6% (to $0.84).
“BEN has a strong customer offering,” UBS wrote in note to clients yesterday afternoon. “However we believe its growth outlook remains challenged and highly sensitive to competitive forces.”
The market was also spooked by Mr Hirst pointing to fiercer competition in areas not subject to APRA constraints such as business lending and mortgages for owner occupiers repaying principal and interest.
Some analysts are concerned renewed competition in these areas will put pressure on lending margins (but customers should benefit).
“As pretty much everyone has had to do the same thing [cut interest only and investor lending], the corollary has been increased price and credit competition in those areas that aren’t subject to restriction – for us, owner occupied home loans and business lending,” Mr Hirst told the meeting.
