Bendigo and Adelaide Bank announces FY 2009 results
10/08/2009
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Highlights
- Cash earnings per share of 62.9 cents
- Net profit after tax before significant items of $173.2m
- Retail deposits continue to grow strongly, increasing 20% to $28.5bn
- Net interest income increased by 6.3% to $635m
- Equity raising to provide for future growth
- Credit quality remains sound
Bendigo and Adelaide Bank (the Bank) today announced an after tax profit before significant items of $173.2 million for the 12 months ending 30 June 2009, a 26 per cent reduction on the prior corresponding period.
The reduced profit was attributable to a slowing economy and global recession, an unprecedented drop in official cash rates and increased funding costs.
However, in a sign that the Retail Bank, including the Community Bank® network, remains strong, retail deposits increased by 20 per cent to more than $28.5 billion. This increase in retail deposits has allowed the Bank to reduce its reliance on wholesale funding, which remains expensive and difficult to access.
Directors announced a final dividend of 15 cents per share (fully franked), taking the total dividend for the financial year to 43 cents per share. The Board’s dividend policy of paying out 60-70 per cent of cash earnings as dividends remains in force.
Newly appointed Bendigo and Adelaide Bank Group Managing Director, Mike Hirst, said a deliberate effort to re-shape the business had placed the Bank in the best possible position to grow shareholder value as market conditions improved.
“There is no doubt that the last financial year presented unprecedented challenges for all Australian banks, with everything from a deteriorating credit cycle and rapid fall in official cash rates to reduced wholesale funding options impacting significantly on financial results,” Mr Hirst said.
“However, we firmly believe that by being the first to reshape our balance sheet and reduce our reliance on wholesale funding we are well placed for the future.
“The strong retail deposit growth generated in the past year – which in itself is confirmation of the strength of our retail business model – has meant that we have been able to act decisively to meet the sector challenges without relying on others.
“A feature of the last financial year has been our focus on maintaining a disciplined approach to writing sustainable business, with available funding being channelled to the most profitable areas.
“Credit quality remains sound, particularly so across the margin lending portfolio.
“Our portfolios are showing signs of growth in line with market sentiment. There has been significant margin improvement from the lows experienced in the earlier part of this year. For many of our competitors, increased funding costs are still to work their way through their business. This could lead to further changes in asset margins.
“Going forward, and particularly after the capital raising announced today, we have the flexibility and capacity to take advantage of emerging market opportunities.
“In Bendigo and Adelaide Bank I see an organisation with a sound credit quality, a balance sheet with a low level of risk, and a high quality capital base. This places us in an ideal position to grow our businesses in a sustainable way, while continuing to meet and exceed the expectations of our customers and creating real wealth for our shareholders,” he said.
Credit quality
Credit quality remains generally sound and is in line with the Bank's low risk appetite. The vast majority of the Bank’s asset base is secured by residential mortgages.
The Bank takes a conservative approach to provisioning, and impaired loans as a percentage of total assets continue to be at low levels. As at June 30, 2009 gross impaired loans were just 0.49 per cent of total assets.
Last week the Bank provided an update on its portfolio of loans to investors in Great Southern Limited Managed Investment Schemes.
The Bank’s exposure to borrowers in Great Southern Managed Investment Schemes is approximately $550 million. These loans are full-recourse to each individual borrower, with an average exposure of less than $70,000 and are spread across every state and territory in Australia. The Great Southern portfolio represents less than 1.5 per cent of the total Bendigo and Adelaide Bank asset base.
A total of $20.2 million has been raised at June 30, 2009 in specific and collective provisions relating to the loans which form part of the Great Southern portfolio.
Funding and capital
The last financial year saw a dramatic restructure of the Bank’s balance sheet, with a reduction in reliance on uncertain wholesale funding sources. Retail deposits now represent nearly 90 per cent of on-balance sheet funding, with growth in deposits of 20 per cent – or almost $5 billion – over the last 12 months.
The Bank’s capital position remains commensurate with the low risk nature of the loan book, with a total capital position of 10.91 per cent and a Tier 1 ratio of 7.43 per cent as at June 30, 2009.
Costs
Operating expenses flattened in the second half of the 2008/9 financial year. As widely reported, the Bank has asked employees to volunteer to take 10 days in unpaid leave this financial year. The response has been exceptional – with the majority of staff participating in the program. This has obvious financial benefits for the Bank, but is also a fantastic advertisement for the commitment and energy that our staff have for the business and its customers.
Revenue and cost synergies from the merger between Adelaide Bank and Bendigo Bank are still being realised, and will result in a more efficient business.
Together the merger synergies and cost controlling measures are being done in a way that preserves the capability and capacity of the business to grow in an improving economic cycle.
Business performance
Net interest income for the period was largely affected by a reduced demand for credit and a decline in the Margin Lending and Third Party Mortgages portfolios. Net interest margin was affected by a lag in term deposit repricing in a rapidly easing cash rate environment, increasing costs of retail funding, and increasing securitisation costs.
The Bendigo Bank Community Bank® network continues to drive superior growth and above system deposit generation, while the relative immaturity of this network means there are years of latent growth to be harnessed by the bank.
Bendigo and Adelaide Bank has 1.4 million customers, across 188 Bank owned branches and 238 Community Bank® branches. The Bank is being buoyed by approximately 11,000 new customers per month. Bendigo and Adelaide Bank is managing 1.7 million accounts, with approximately 1.9 products per person.
Significant opportunities exist in the Third Party Mortgages, Wealth Management and Margin Lending businesses. There is a genuine desire to support a 5th funding alternative in the Third Party Mortgages sector, and with improving margins and a reshaped commission structure the fundamentals of this business are rapidly improving.
Margin Lending offers the Bank a low-cost and high margin business with excellent credit performance. There is significant capacity for growth as customer appetite for risk and gearing is restored.
An increased customer risk appetite will also benefit our Wealth Management business – and with other key industry drivers (compulsory superannuation and an ageing population), the prospects for growth remain sound.
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