Bendigo and Adelaide Bank expect some easing of margin pressure – Interview

By Alice Uribe

SYDNEY — Australian banks will continue to see margins tighten in an environment of ultra-low rates and continued competition in the mortgage market, but Bendigo and Adelaide Bank Ltd. believe that increases in cash rates could bring him some relief.

Australia’s regional lender said on Monday its half-year net profit rose 32% to A$321.3 million ($229.3 million) for the six months to December as its residential loan portfolio increased faster than its peers.

But its net interest margin, a measure of the difference between what a bank pays to obtain deposits and funds and what it charges to lend money, was 14 basis points lower than that of the second half of fiscal 2021 at 2.09%.

Bendigo said the drop reflected its growing liquidity position, fierce competition in most loan categories and continued strong consumer preference for fixed-rate loans.

Marnie Baker, chief executive of Bendigo, told the Wall Street Journal that the outlook for NIMs was “absolutely challenging”, but the possibility of the Reserve Bank of Australia raising its cash rate earlier than expected could help the balance sheet. of the lender.

“We’ve seen NIMs under pressure across the industry over the past couple of years. I think what we’re seeing now are signs of a changing rate environment. That’s actually going to provide an opportunity for improve this NIM in the future,” she said.

“We are already seeing signs of customers switching from fixed to variable rates.”

For the second half of fiscal 2022, Bendigo expects continued margin pressure with headwinds expected to ease by the end of the second half of fiscal 2022.

Australian bank NIMs were hurt by the low interest rate environment which fueled a surge in house prices. This has spurred competition for mortgage market share among lenders, while squeezing margins.

During the current reporting season, Westpac Banking Corp. announced that its NIM was down eight basis points to 1.91% from the quarterly average for the second half of fiscal 2021.

The country’s biggest lender, the Commonwealth Bank of Australia, said its NIM for the first half of fiscal 2022 was 14 basis points lower year on year at 1.92%. The ABC said this was partly due to an increased shift to low-margin fixed mortgages, market expectations for higher interest rates and continued competition for mortgages.

Ms Baker said Bendigo’s plans to boost its business banking services were an opportunity for growth after business lending came under fire in the first half, with a focus on boosting “growth and higher margin profits”.

While residential loans rose 1.1 times the system rate and rose 8.4% on an annualized basis for the first half, business loans fell 8.3%. This saw total loans for Bendigo increase by 4.3% compared to system growth of 8.3%.

“We already have a pretty unique opportunity from a business banking perspective, we play in the small and medium business part of the market,” Ms. Baker said.

“It’s not a part of the market that tends to be overserved by financial institutions and the fact that we are represented in over 500 communities across Australia gives us the opportunity, with our style of banking relationship , to be especially not all small to medium-sized banks in the communities where we operate.”

After announcing this month that it was bringing together its investment banking and agribusiness divisions with a clear focus on growth, for the second half of fiscal 2022, Bendigo said it expected a seasonal increase in the growth of its agribusiness credit. He said this would drive short-term loan growth while residential loan growth would continue to outpace system growth.

Write to Alice Uribe at [email protected]

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