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Bendigo reports fall in profit, rise in mortgage growth

The fifth-largest retail bank has reported above-system growth in residential lending in FY19, but a decline in total profit, primarily due to remediation and redundancy costs.

Bendigo and Adelaide Bank Ltd has reported statutory net profit of $376.8 million in in the 2018-19 financial year, down 13.3 per cent year-on-year (YoY) from $434.5 million in the previous corresponding period. 

The profit was weakened by costs associated with customer remediation ($16.7 million) and redundancies ($11.9 million), as well as “unrealised losses” in its reverse mortgage business Homesafe ($24.1 million) due to the prolonged period of declining property prices in Melbourne and Sydney, according to the non-major bank.

It’s net interest margin stayed steady at 2.36 per cent in FY19.

Bendigo and Adelaide Bank’s managing director, Marnie Baker, said these results were “achieved in an environment of low growth, political uncertainty, subdued consumer confidence and increasing competition”. 

On the other hand, the bank recorded a 1.1 per cent increase in total lending to $62.1 billion in FY19, driven by YoY growth in residential (3.5 per cent) and agribusiness lending (2 per cent). 

Residential lending growth above system

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Its residential portfolio grew by 3.5 per cent YoY to $37.7 billion as of the end of June 2019, with the second half of the 2019 financial year experiencing stronger growth of 4.3 per cent in annualised terms or $1.3 billion.

Retail mortgages continue to account for 58 per cent, or $22.8 billion, of Bendigo and Adelaide Bank’s home loan portfolio, and third-party mortgages 42 per cent, or $16.8 billion, as of 30 June 2019. 

Of the $16.8 billion in total mortgages generated through the third-party channel, mortgage managers accounted for $12.6 billion, while mortgage brokers accounted for $3.9 billion.

In addition, of the total amount of owner-occupied (OO) loans, which represents 63 per cent of the bank’s residential loan book, the proportion of principal and interest (P&I) loans went up 2 percentage points to 86 per cent in H2 FY19, while interest-only (IO) loans went down 2 percentage points to 14 per cent. 

Meanwhile, of the total amount of investor loans, which represents 37 per cent of the bank’s residential mortgage portfolio, the proportion of P&I loans rose 3 percentage points to 49 per cent in H1 FY18, while IO loans dropped 2 percentage points to 51 per cent.

The majority of Bendigo and Adelaide Bank’s mortgages are spread across Melbourne (39 per cent) and Sydney (24 per cent), followed by Queensland (15 per cent), South Australia and the Northern Territory (11 per cent), Western Australia (9 per cent), and Tasmania (2 per cent). 

The proportion of the portfolio with a loan-to-value (LVR) ratio of 80 per cent or less was up 3 percentage points 82 per cent at the end of June 2019 when compared to the previous half, while the average LVR stayed the same at 58 per cent based on property value at origination.

Residential loans in arrears (90+ days) and impaired loans decreased (by percentage of portfolio) to 0.4 per cent (from 0.5 per cent in December 2018) and 0.08 per cent (from 0.09 per cent). The arrears rate was down in all states, the bank said. 

By dollar value, bad and doubtful debts (BDDs) in its consumer lending portfolio (including non-residential home loans) decreased by 28.8 per cent to $50.3 million at the end of June 2019. Consumer loans accounted for $19.2 million of BDDs, while business loans for $20.6 million. 

Like mortgages, agribusiness lending growth in the second half of FY19 was also above system at an annualised rate of 12.8 per cent, taking the value of its portfolio to $6 billion as of the end of June 2019, compared to $5.6 billion at the end of December 2018. However, in actual terms, agribusiness lending grew by 2 per cent YoY in FY19. 

Bendigo and Adelaide Bank reported a 5.7 per cent YoY contraction in business lending in FY19, though in the second half of FY19, the annualised growth rate was lower at negative 1.2 per cent. 

Continued rise in new customers and retention

The bank also reported a “four-fold” increase in net new customers, taking the size of its customer base to 1.7 million.

“We achieved this growth whilst at the same time recording an increase to our net promoter score to 24.8, which is more than 30 points higher than the average of the major banks,” Ms Baker said.

Ms Baker reiterated that the bank has been focusing its efforts and investments towards four key markets: existing customers, Millennials, SMEs, and family corporate farms.

Its efforts have seen Bendigo and Adelaide Bank increase customer retention by 30 basis points to 93.5 per cent, with the number of Millennial customers growing by 453 per cent, SMEs by 5 per cent, and family corporate farms by 11 per cent.

Further, neobank Up, which is backed by Bendigo and Adelaide Bank, brought more than 100,000 new customers in the first eights months of launching publicly in October 2018. 

The bank said the Tic:Toc platform, which powers its Express Home Loan offering, provided $3 billion worth of submitted home loan applications since launch, with “application, assessment, approval and customer contract dispatched within 58 minutes, utilising 12 minutes of human effort”. 

Approvals via Tic:Toc increased 55 per cent in H2 FY19, when compared to the previous six-month period.

‘Demanding’ regulatory environment

Speaking of recent regulatory changes at the investor briefing on Monday (12 August), Ms Baker said: “The regulatory environment for financial services continues to change at pace and has become more demanding for all participants. This is to be expected, particularly given the information that came to light during the royal commission and the recommendations. 

“While the biggest shift in regulatory focus has been in the areas of remuneration, culture and management of non-financial risks, we believe the extent and volume of change is unlikely to abate in the next few years. 

“Consistent with our culture and values, we maintain an open dialogue and consultative approach with our regulators where we get things wrong, our approaches to report and resolve the matter as quickly as possible, not leaving our customers disadvantaged.”

Ms Baker also expressed disappointment at the lack of “any real policy progress to address the significant market power the major banks exercise as well as the structural features of the industry which impede non-banks’ ability to fail to compete”. 

“I continue to believe that there is considerable scope for this government to supplement the recommendations of the royal commission final report to improve customer outcomes by levelling the playing field and thus creating greater competition,” she continued. 

[Related: HSBC leads non-majors’ charge in mortgage space]

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