An early Christmas present for shareholders in Bendigo and Adelaide Bank which on Tuesday revealed a surprise upgrade in guidance.
The country’s largest regional bank said it had delivered on its promise to improve margins via a sharper focus on targeted growth.
In the trading update, Bendigo said its unaudited cash earnings were up 22% to $245 million for the first five months of the financial year to November 30.
The market loved the news, sending the shares up nearly 7% to $9.66, the highest close since August. That was after touching a day’s high of $9.74.
This was driven by a 5.2% increase in lending balances, an 8.9% lift in deposit balances, and improvements in its net interest margin (NIM) (which was understandable given the way the Reserve Bank has lifted interest rates and the alacrity with which banks have boosted home loan rates and dragged their heels on increasing deposit rates).
Bendigo and Adelaide Bank said in the update that its NIM post revenue share arrangements year to date was 1.85% with an exit NIM post revenue share arrangements of 2.01%.
The bank’s year to date NIM pre-revenue share arrangements stood at 2.30%.
Thanks to the positive outlook for interest rates, the bank expects its NIM tailwinds to continue into the second half of FY 2023. Management notes that this reflects the strength of its deposit gathering network.
One small but not unexpected negative is that operating expenses are expected to increase modestly on 2021-22’s figures’s, reflecting higher non-lending losses and a higher mix of investment spend being expensed.
But the bank said arrears had eased a touch from June 30 levels.
“Greater than 90 days’ residential arrears for the month of November 2022 of 41 basis points were down 8bps as compared to 30 June 2022,” the bank said in the update.
CEO Marnie Baker was all upbeat in a brief comment in the update on Tuesday, saying:
“At our full year results in August, we outlined our intent to sharpen our focus and concentrate our efforts on better returns, and to date in the first half of FY23 we have delivered strong growth in cash earnings and an improved return on equity.
“Our NIM has continued to rise as we carefully manage our volume growth and margins, while continuing to prudently manage costs in an inflationary environment. We remain committed to our strategy and vision, and we are united in our purpose of feeding into the prosperity of the community and not off it,” Ms Baker said.
