Australia's fifth-largest bank, Bendigo and Adelaide Bank Ltd (ASX: BEN) released its half-year results to the market this morning. Performance was average, in keeping with a competitive banking environment in general.
Here's what you need to know:
- Income from operations rose 1.5% to $795 million
- Net Profit After Tax (NPAT) was flat, up 0.1% to $209 million
- Cost to income ratio declined (lower is better) 2.1% to 54.3%
- Net Interest Margin (NIM) including profit-share arrangements fell (higher is better) slightly to 1.76%
- Common Equity Tier 1 (CET1) ratio fell 0.12% to 7.97%
So What?
A mediocre result from Bendigo Bank, not all that different to what other banks like Commonwealth Bank of Australia (ASX: CBA) are expected to report in the coming days. Tighter lending conditions and restrictions on investor lending have led to fewer customers and increased competition among lenders.
Bendigo weathered this reasonably well, although its interest margins and Return On Equity (ROE) declined slightly, reflecting the pressures across banking now.
Bendigo has a decent financial position, with 80% of its funding provided by bank deposits – a very high level compared to peers. Its capital ratio (a measure of financial stability) is also good, although management has announced an increase in the Dividend Reinvestment Plan discount in order to improve this further.
Now What?
The big question is whether Bendigo can continue to grow its profits in the near term. Although competition has eased slightly, it's not the best market for lenders and at least some indicators are suggesting that bad debts could be set to rise among retail lenders.
There's also the potential for rising levels of capital to dilute earnings again in the future – cash earnings per share fell 1.8% in this half. I don't think think Bendigo has a lot to offer growth-seeking investors, but it will likely remain popular among retirees and Self-Managed Super Funds (SMSFs) due to its attractive dividend.
