New customers boost Bendigo and Adelaide Bank profits

Bendigo and Adelaide Bank reported profit of $321 million for the six months to December, up 31% from a year earlier.

The profit surge follows an increase in loans and total income that will deliver an interim dividend of 26.5 cents per share.

The bank gained 70,000 new customers in the six months to the end of 2021 to bring its total customer base to 2.12 million, but its market share fell to 2.36% from 2.41% in June.

Total revenue increased 2.9% to $873.4 million from the same period a year earlier.

Managing Director and CEO Marnie Baker said the result marked the sixth straight six months the bank had seen growth in residential loans.

“The strength of our retail customer franchise is evident in the performance of our consumer bank, which recorded its sixth consecutive half of above-the-system home loan growth, up 8.4% against growth in the 7.6% system,” she said.

“We continue to see strong residential loan flows with settlements in the period up 4.3% from the prior half.

“While fixed rate lending has been an important feature of the mortgage market for most players, including us, more recently there has been a shift to variable rate lending.”

However, overall loan growth lagged behind the system, due to seasonal factors in agribusiness and a decline in the bank’s corporate loan portfolio this half, with total loans increasing by 4.3% vs. 8.3% system growth.

That prompted the bank to announce this month that it would merge its merchant banking and agribusiness divisions to kickstart growth.

Marnie Baker

Last year, Bendigo Bank also acquired Melbourne-based fintech Ferocia to accelerate its digital strategy following the launch of its Up mobile digital banking platform.

“Our acquisition of technology company Ferocia and Australia’s largest mobile-only digital bank, Up, is an important step for the Bank. It strengthens our digital capability and lays the foundation for future growth as we continue to supporting communities across Australia through our community banking model,” Baker said in a statement to shareholders this morning.

“Up has 460,000 customers, many of whom log into the app several times a day. We can see 45,000 of these customers are actively saving for a deposit on a home and we plan to serve these savvy, younger customers with our fully digital Up Home offering later this fiscal year.

The bank has also started divesting what it describes as “non-core assets” and divested the Community Insurance Solutions insurance brokerage business on half.

It has also sold its invoice finance business since the start of the year and says it will make further announcements on disposals “as they occur”.

“We are also continuing the work of modernizing our bank by removing complexity and creating additional capabilities. Our ‘decision time’ has decreased in both our first-party and third-party channels with more improvements to come,” Baker said.

“We have moved 13% of applications to the cloud. Automated decision-making technology is now being applied to third-party home loan applications and will expand over the next 12 months.

“Around 25% of sales are made through digital channels and 66% of customers are active online banking customers.”

Bendigo and Adelaide Bank has a network of 317 branches across Australia with a strong presence in Victoria and South Australia.

He said that while he provided support to 25,000 customers throughout the pandemic, the recent start of the Omicron wave only led to 25 new retail customers requesting help.

The half-year result follows a statutory net profit of $524 million for fiscal year 2020-21, compared to $192.8 million for fiscal year 2020.

Baker said the strong first-half result showed his strategies were working.

“We are committed to eliminating complexity, keeping cost growth low, and most importantly, to remaining a customer-centric organization,” she said.

“Looking forward, we expect residential loan growth to continue to outpace system growth and the seasonal return of agribusiness growth will lead to better short-term loan growth.

“Challenges in the form of margin compression and other one-time revenues are expected to drive revenue down in the second half. Costs will need to come down for us to continue to drive down the cost-to-income ratio.”

Bendigo and Adelaide Bank has a market capitalization of approximately $5.2 billion. The market reacted positively to the news, with shares of the bank rising more than 2% in the first hour of trading on the ASX this morning at $9.47.

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