REGIONAL lender Bendigo and Adelaide Bank has been able to navigate the tougher banking market despite hedging charges and several soured commercial property loans causing first half earnings to drop 15 per cent.
Bendigo, which continues to expand in regional areas, said it was more important than ever for smaller banks to provide a competitive alternative to the Big Four banks which have been tightening their grip on the market over the past year.
"Competition in Australian banking is absolutely critical and we see ourselves as playing a part in that competitive landscape with a differentiated approach," Bendigo managing director Rob Hunt said.
Next month Bendigo is expected to name its replacement for Mr Hunt, who has previously announced plans to retire in the middle of the year. Bendigo executives Jamie McPhee and Mike Hirst are considered frontrunners to take charge.
Bendigo yesterday handed down cash earnings of $122.2 million for the six months to the end of December, an increase of 42.4 per cent on the same time last year. However, the result was clouded by the first-time inclusion of Adelaide Bank's results after it merged with Bendigo in late 2007. Cash earnings per share, a figure regarded by most analysts as providing the most accurate snapshot of profits, fell 15.1 per cent to 44.3 cents a share.
Bad debt charges of $25.5 million were up from $3.7 million as a result of increased provisions across four commercial property loans that had gone sour. Elsewhere, accounting rules surrounding the treatment of hedging positions during mergers wiped $43.7 million from earnings.
With more than 70 per cent of its loans tied up in housing, Bendigo is regarded as having a low-risk loans book. Just 0.2 per cent of its total loans are classed as impaired, a fraction of the rate of its bigger rivals.
Bendigo's revenue jumped 52 per cent in the first half, reflecting the merged asset base, but net interest margins fell 16 basis points.
Analysts said Bendigo's profit was slightly short of expectations, with one-off charges affecting an already clouded result. Brokers Credit Suisse said revenue and cost growth were disappointing, while earnings had been helped by a low effective tax rate. Bendigo's shares yesterday fell 5.7 per cent to $8.94.
Bendigo also announced plans to issue $174 million worth of convertible preference shares under moves to delist Adelaide Managed Funds Asset Backed Yield Trust. This will boost its capital by about $90 million, bolstering its balance sheet.
Mr Hunt said moves by governments around the world to support the banking system highlighted the pivotal role banks played in the local economy. This was an endorsement of Bendigo's efforts to expand in regional areas over the past decade, where major banks had been cutting back services, he said.
