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‘Fierce competition’: Bendigo and Adelaide Bank manages mortgage growth

While a “competitive backdrop” leached away at its profit margin, the group secured $2.1 billion in new home loans over the six months to December.

Bendigo and Adelaide Bank reported its results for the half-year ended 31 December 2021 on Monday (14 February), revealing a 31.7 per cent rise in statutory net profit, up to $321.3 million.

The bank’s total lending had grown by 2.1 per cent on the previous half, up to $73.8 billion.

Gross residential loans came to $54 billion, growing slightly above system, up 4.2 per cent during the half, and up by 11.5 per cent year-on-year.

But the bank’s net interest margin had declined by 14 basis points (bps) on the previous half, and 21 bps year-on-year, to 209 bps.

The margin squeeze was the result of an increase in liquidity, “fierce competition across most lending categories and the continued strong preference for fixed rate loans”, according to Marnie Baker, managing director and chief executive of Bendigo and Adelaide Bank.

While home loans had moved upwards, commercial and consumer lending both slipped, with the business segment down by 4 per cent during the half, to $15.9 billion (flat year-on-year) and the consumer book down by 5 per cent over the half, to $2.3 billion (down 15 per cent year-on-year).

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Meanwhile, the proportion of fixed-rate home loans had risen from 32 per cent of the book a year ago, to its current 47 per cent.

“Given this competitive backdrop, we continue to work judiciously to balance the requirement for growth and return,” Ms Baker said.

“We are confident that our approach, combined with better leverage to a rising cash rate will play out with improved returns over time.”

Looking ahead the CEO said she anticipates home loan growth to continue above system and for a seasonal return of agribusiness growth.

But, the outlook was cautiously optimistic.

“Challenges in the form of margin compression and non-recurring other income are expected to drive revenue lower in the second half,” Ms Baker warned.

The home loan portfolio now holds a 50:50 split between the retail and third-party banking channels, compared to retail shouldering 52 per cent of the book a year prior.

Digital mortgage product on the way

Ms Baker flagged the launch of the group’s digital loan offering, Up Home, will come in the months ahead.

The CEO also noted the group has made progress with its transformation strategy, focusing on digitisation and streamlining the company, after the $116 million acquisition of software developer Ferocia during the half.

“The pace of our transformation agenda continues to accelerate,” Ms Baker said.

“We have disposed of non-core assets and business lines. We are moving applications to the cloud, which improves our efficiency and technology resilience.”

Bendigo and Adelaide Bank recently declared that it would consolidate its rural bank and business banking businesses into a single division.

A new role of chief customer officer, business and agribusiness, was created to lead the segment, with the group currently on the hunt for a candidate to take the job.

Business banking executive Bruce Speirs was moved to the new role of chief operating officer.

Meanwhile, Bendigo and Adelaide Bank’s board has declared a dividend of 26.5 cents per share for the half, with Ms Baker calling it a vote of confidence. She stated the board expects “continued above system residential lending growth”.

[Related: AMP Bank to roll out direct-to-consumer digital mortgage]

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