Annual General Meeting Managing Director's Address 24/10/2011
Directors, shareholders, staff, ladies & gentlemen,
As you have seen, our results for the financial year ending June 2011 are very solid showing market beating growth in most products and subsequent reasonable earnings growth. The results clearly represent our continued desire to grow at profitable prices.
So, the first thing I would like to do is thank all our staff, partners, customers and shareholders for their effort and support for our bank.
Thank you.
The Group's solid results have been largely driven by our focus on making it easier for customers to do business with us.
Each day our people have reflected on what they do and how they can improve upon it, to make the experience of our more than 1.5 million customers a better one.
It's this approach that has seen the Bank continue to record industry-leading customer satisfaction and advocacy results and in July our Bank was named the ‘Most Trusted Bank' by Reader's Digest and recognised by Asian Banking & Finance as having a leading Corporate Social Responsibility Program.
At Bendigo and Adelaide Bank our aim is to listen to what our customers want, so we may understand their needs, and assist them in accessing a comprehensive range of products and services to help them achieve their financial goals.
To this end we have introduced LINX - new technology which assists our people in helping their customers.
Linx enables more meaningful conversations between our staff and customers with an end goal of providing our customers with better outcomes.
Significant effort has also gone in to realigning our Wealth offering, launching a one-stop shop for customers under the Bendigo Wealth umbrella.
This will assist us in providing essential financial solutions such as financial planning, insurance and superannuation, to customers who may have only turned to us for loans, credit cards or statement accounts in the past. We believe it is essential that all our customers have some form of access to these services to help them build their wealth.
Our third party lending business will be receiving much needed investment as it experiences a rebound in demand from partners wishing to do business with us.
Brokers are still seeking an alternative to the major banks and we are that alternative. As part of our wider reinvestment in this part of the business, we will relaunch the Adelaide Bank brand in September 2011.
Our retail network continues to grow with a further 20 branches opened and seven agencies established this year.
We now have more than 570 customer service outlets Australia-wide, and will continue to add to this footprint, further enhancing customer convenience and personalised service.
Again, much of this growth was driven by communities wanting to establish their own Community Bank® branch.
This year 11 new Community Bank® companies were formed and 16 branches were opened.
Many mature Community Bank® companies are opening their third, fourth and fifth branch, with more than 10 companies returning over $1 million to their local communities since establishment.
It's this kind of success that continues to motivate other communities to join the network, with a further 50 sites currently in the Community Bank® development pipeline.
We've added to our ATM network, primarily through a network-sharing arrangement with Suncorp Bank, but also through our own investment, which means our customers can now access their accounts at more than 2000 locations without incurring a direct charge fee.
We're also growing our business in other ways.
In December, we finalised our purchase of Rural Bank, a move that provides us with greater exposure to a well-performing business with sound credit quality and strong returns.
And Rural Bank is already making moves in the market place, announcing its intention in August to join forces with Australia Post to distribute banking services via regional and rural post offices.
The deal will see some Rural Bank products and services made available at selected postal outlets from late November 2011.
The roll-out will start in New South Wales, with the offering to be available at 1400 post offices across the country by 2013.
Importantly, this reinforces our commitment to rural and regional Australia and, I believe, further enhances our position as the first banking alternative to the major banks.
Our funding position is strong and we successfully closed two Residential Mortgage Backed Securities issues during the financial year worth $2.5 billion.
This strength reflects our ongoing focus on making the business more robust. Conservative risk management practices, low-risk funding and balance sheet structure, sound capital ratios and a sustained improvement in profitability are the hallmarks of this effort.
And our work in this area has been well-received and recognised.
In May, Fitch Ratings Agency upgraded the Bank to A-, making us the first Australian bank and one of few globally to receive an upgrade since the GFC.
Then a month later, Standard & Poor's put our BBB+ rating on positive outlook for an upgrade to A-.
Our new ratings position the Bank well for future growth, in part by reducing the cost of our wholesale borrowing but importantly by opening up access to new markets.
If we continue to improve our profitability then we feel confident further credit rating upgrades can follow.
Throughout all of this hard work and success, we all made a concerted effort to be a part of one team, reaching for the same goal.
This came to the fore during the Queensland floods, when staff from right across Australia pulled together, working extended hours and performing extraordinary duties to make sure our customers and staff in the flood zone were supported.
The same spirit of community was evident during the Victorian floods and Cyclone Yasi.
But none of this should be news to you. I believe all we have achieved reflects our vision and our strategy.
Being Australia's leading customer-connected bank is the vision that drives each and every one of us, and while we have made huge strides towards achieving this, we're constantly raising the bar and understand we can always do more to help our customers and support our communities.
We know our strength comes from our focus on the success of our customers, people, partners and communities.
We believe we have a market-beating strategy, an ethos that sets us apart from others and a point of difference that cannot be easily replicated.
We take a 100-year view of the business; we make decisions for the long-term and embrace our privileged position as the stewards of a 153-year-old institution that has become far more than just another bank.
We listen to our customers, because if we can understand what our customers want and help them to achieve it, then we will be relevant, connected and valued for that.
Our ability to forge partnerships is a key capability for us and differentiates us from other banks. We must build on this strength and leverage it, to ensure the prosperity of our business and the customers and communities we serve.
If we do these things and do them well, our business will continue to be successful and we will be well positioned to seize future opportunities.
So what might the future hold?
In the first instance I think it will be getting back to the traditional role that banks have played.
There is no doubt that, today, there exists a demand in society globally for a more considered and considerate approach to banking. A return to the days when banks helped communities grow by intermediating between those who had more money than opportunity and those in the opposite position. That demand also extends to bankers playing the role of a trusted adviser in assisting people achieve their wealth goals in a sustainable way.
At Bendigo and Adelaide bank we believe we perform those traditional roles today, albeit we can, and will, get better at it. So from that perspective I suggest we are well placed.
Importantly though, I think banks globally continue to face a challenging environment.
I think it is relatively easy to mount a case to say that banks could soon be under threat from new entrants, something that would have been unthinkable a few years ago given the high barriers to entry provided by physical branch networks, significant technology investment and the “flight to quality” during the GFC.
So let's consider some characteristics of the current environment that could promote new entrants:
- As an industry, banks are struggling to maintain customer support. This is not necessarily the case for all banks individually, but it is a factor that could leave customers willing to try new providers should it be easy to do. I believe this to be particularly true of the younger generations for whom change is a welcome constant. In addition, banks no longer control what channels customers choose to transact through - customers will elect to use whichever channel they want, whenever they want and however they want.
- The response of governments and regulators to the GFC and other banking misdemeanors has resulted in new and more regulation. Whether it be in the guise of prudential regulation, tax compliance or consumer protection, regulation is providing an ever increasing financial burden for banks. And, by the way, I'm not saying that this burden isn't necessary or deserved. I am saying though, the increased costs of compliance could well play a role in threatening the position of banks in the economy.
- There has been a marked reduction in the cost of technology as cloud based subscription services replace traditional main frame based, high cost software solutions. Additionally, more often than not, much of this new capability is available on mobile devices which are becoming ubiquitous throughout the world.
- Whilst banking has more and more moved to a user pays model, the absolute size of banks still challenges management in understanding the granularity of earnings within their businesses. This means that there will be elements of cross subsidy at any given time (that will naturally happen as each part of the business works through cycles which have different timing) leaving that subsidy to be exploited by providers focusing on one area.
For example, we saw this in Australia when the emergence of the securitisation market allowed non bank originators to attack banks in the home loan market. The new entrants identified the cross subsidy that home loans provided within banks and priced to eliminate that. As it has turned out, that particular challenge has been stubbed out for the moment - but it took the GFC to do it!
To me, all of this adds up to an environment where disruptive business models may emerge to compete with banks in some or all areas of their business. In fact, this is already happening in the payments arena where companies like Google and Pay Pal are competing with banks through new and cheaper technology. Similarly, Banksimple in the US and the mooted arrival of Movenbank - a paperless, cardless, fee free bank - are utilising social media such as Facebook to challenge traditional banks.
All of these new models are very capital light. They carry little infrastructure, relatively few staff and some even back out their balance sheet through alliances with traditional banks, so it will be interesting to see how the economics of this new approach falls between origination and risk. In fact, that split will be vital to the sustainability of these new entrants.
Of course, none of this should be a surprise. There have been a lot of people who have been predicting for some time that there will be convergence between banking, payments and telecommunications.
As far as I know, none of them have been able to clearly articulate what that might eventually look like - although I note the Canadian carrier Rogers Telecom has applied for a banking licence - so between what they bring forward and what I have outlined above, it may be that some of the haze is about to clear.
I personally have no idea about who is likely to have the right model or when something meaningful will emerge, but I am certain there will be significant change ahead. I do note, however, that we are well placed to participate in whatever change occurs. We are small enough to be flexible, do not have huge legacy investments and hold ownership in a bank, telco and payments company.
In closing, I think there is one constant characteristic of successful organisations no matter what the required model may be.
Successful banks will have to be connected with their customer base, in a way that is relevant to their customers' needs, if they are to be valued. An engaged customer base is fundamental for any business as industry undertakes change.
Thank you.
