Ownership of distribution channels a ‘significant advantage’

Reflecting on the instances of intervention from the Australian Prudential Regulation Authority, Mike Hirst, managing director of Bendigo and Adelaide Bank, said that the role of the branch network was “a really interesting question for everybody at the moment”.

Speaking at the bank’s 2017 full-year results announcement, Mr Hirst noted that customers were the bank’s “greatest advocates” while considering the future role of the bank’s branch network.

He said: “If you look at the commonly held theories around what's going to happen with branch networks, most of it isn't positive. But I have a different view on that, and that is that as we move into an environment where the regulatory pressure and the oversight on institutions becomes stronger and stronger and the penalties for not doing the right thing become greater, then ownership of your own distribution will actually give you a significant advantage.

“Now, that doesn't mean that there isn't a place for third-party distribution because, of course, there is; customers want the flexibility that that provides.”

Mr Hirst added: “But how those two things diverge or converge over that period is the interesting question.

“I think, having a national footprint that is proprietary to your organisation is going to provide you with much better flexibility in how that plays out.”

Richard Fennell, chief financial officer at Bendigo and Adelaide Bank, added that in light of APRA’s clampdown on investor and interest-only lending, the bank had pulled “hardest” on the third-party channel in order to “reign in the growth from a lending perspective”.

Results

The bank posted underlying cash earnings of $418.3 million, denoting a 4.2 per cent increase on the 2016 financial year, and an after-tax statutory profit of $429.6 million for the 2017 financial year.

Pointing to the growth, Mr Hirst said: “Recently, APRA’s lending caps have somewhat restricted that strong lending growth across the retail (7.7 per cent for the year) and third-party channels; however, margin expansion was strong in the second half, up 8 basis points half on half, with an exit margin of 2.34 per cent.

“In part this was driven by the need for mortgage repricing to respond to those regulatory caps on interest-only and investor growth. Additionally, our disciplined approach to front book mortgage pricing held us in good stead following the May and August 2016 cash rate reductions putting pressure on net interest margin.”

[Related: Housing resilience puts pressure on APRA]