Up delivers customer growth for Bendigo

  • By Christine St Anne

Bendigo and Adelaide Bank reported strong customer growth, however, its underlying cash earnings for the first half missed the mark, reporting a flat net profit result of $220 million.

The result missed consensus by 2 per cent. Net interest margin fell three basis points to 1.95 per cent on the back of funding pressures.

Capital base remains strong with Common Equity Tier 1 Capital growing 14 basis points since June 2018 and is on track to meet “APRA’s unquestionably strong capital benchmarks.”

Mortgage growth was up slightly up but offset by the seasonal fall agricultural loans. A fully-franked dividend of 35 cent peer share and in line with the previous period was also announced.

“It was a soft result driven by revenue weakness. Net interest margin pressure is a concern and appears mainly driven on the funding side. This net interest margin pressure is also likely to be ongoing in the absence of further mortgage back-book repricing,” an analyst note from UBS said.

The business, however, reported an increase on customer growth and remains focused on strategies to boost is digital proposition as the bank continues to garner a younger customer base.

New customer growth increased by 18 per cent and net customer growth – existing customers taking on more products - increased by 57 per cent compared with the same period last year. In January, new customers increased by 52 per cent compared with same period last year.

The bank has also managed to attract younger customers with the average age of new customers falling by 1.4 years compared with the same period last year. In January, the average age of its customers was down 20 per cent to 4.6 years.

“Our first-half 2019 customer growth numbers demonstrate the results of our continued investment in innovation that matters to our customers,” Bendigo and Adelaide Bank CEO Marnie Baker said.

She highlighted that the success of this strategy was underpinned by the launch of Up, its digital bank which launched in October.

“We have been pleased to see not only an increase in new customer growth but also the increased loyalty from our existing customer base,” she said.

This growth was also driven through the bank’s partnership with Deakin University. Baker signaled that a similar tie-up was in the pipeline with an announcement to be made soon as it continues to promote its awareness among younger customers.

Its partnership with digital mortgage platform Tic:Toc is also expected to deliver for the business.

Too big to fail

“The launch of Up, our partnership with Tic:Toc making us the first Australian lender offering an instant digital home loan known as Bendigo Express, and branch innovations that reimagine the branch of the future, will continue to drive further growth opportunities,” Baker said.

However, in a call with analysts on Monday, the Bendigo chief was careful to note that the growth and targeting of a younger customer base was a long-term strategy for the bank.

“Within the context of our existing customers, younger customers are just starting out their journey. As they increase their wealth, we do expect them to take out more products like credit products.

“It is a longer-term strategy for us. The immediate growth will not have an immediate impact on the short-term,” Baker said.

Baker also acknowledged the Royal Commission Final Report but said wider policy is needed to support better customer service.

“Whilst the Royal Commission Final Report makes strong industry-wide recommendations to improve customer outcomes, little goes to the issues of competition and a level playing field, something many inquiries cite as being essential to better customer outcomes, and a point we’ve made for years,” she said.

“There is considerable scope for Government to supplement the recommendations with pro-competition initiatives, including addressing the ‘too big to fail’ funding cost advantage accessed by the major banks, enhanced risk-weight settings that would result in fairer capital outcomes across all banks and the disproportionate cost of regulation on smaller participants.

"A less competitive environment means poorer customer outcomes."