RICHARD Fennell, Bendigo & Adelaide Bank's bucolic chief financial officer, has declared this morning's half-year numbers are so clean they're "almost boring".
When it comes to bank financials, there's nothing wrong with boring when you consider the exciting but dire alternatives. But judging from the analysts' quibblings, perhaps Bendigo's 15 per cent surge in cash profit to $162.1 million isn't so lily-white (bank profits rarely are).
One concern is the bank is light on for regulatory capital and has not been organically growing surpluses at the desired rate to meet the elevated requirement of the pending Basel 3 requirements.
The bank maintains a capital raising won't be required and the current dividend payout ratio can be maintained (as long as enough investors take up the dividend reinvestment plan).
nother issue -- and we'll be hearing more on this one -- is the erosion in conditions faced by the bank's community bank franchises.
Under the original model of the 12-year old scheme, community branch profits were meant to be shared 50-50 by the community and head office. But lower margins on term deposits have squeezed returns, which mean Bendigo has had to cede a higher interest margin to keep some of the newer branches viable.
?In the next few weeks we will be talking to some of our partners about how we address that,'' said CEO Mike Hirst.
A third concern relates to delinquencies: bad-debt write offs were stable, but there's been an uptick in 90 day past-due loans. The bank also hasn't recorded a specific flood overlay in its provisioning, but confirmed some farmer clients have been affected.
Unlike with last week's dazzler from the Commonwealth Bank, Bendigo's result didn't exactly enjoy the brass band reception (the shares dipped 16c).
But it's a moot point as to whether analysts are getting caught up in their Basel 3 underwear, given that at a macro level the result was impressive enough, with the bank weathering the deposits squeeze (which accounts for 90 per cent of its loan funding).
?It's fair to say the term deposit market is stabilising a little but no-one is calling an end to the competitive pricing at the moment,'' said Hirst.
He said the results vindicate Bendigo Bank's contentious 2008 merger with Adelaide Bank, but it's apparent the retail-focused Bendigo side has been holding up the numbers.
The Adelaide Bank business is now a wholesale operation, sourcing loans through third parties such as brokers. Given the wholesale funding restraints, the business has been predictably subdued, but Hirst said it's time to light the wick again.
Criterion last had Bendigo as a hold at $10.20 in February last year -- a prescient call indeed.
Our rating is under review. The bank clearly faces behind-the-scenes issues, but floods and droughts aside its rural franchise is riding the benefit of record soft commodity prices.
BEN Price at posting:
$10.03 Sentiment: Hold Disclosure: Not Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)