A near-halving in interest costs has significantly improved the financial position of Bendigo and Adelaide Bank, one of Australia’s three remaining regional banks of any note, but it still faces challenges in what has become an increasingly fierce war for deposits to help reduce the pressures on its overall funding base.
Amid the optimistic noises emanating from the bank today at its latest half-yearly results, it was interesting to note that the bank’s interest income had actually declined by $664 million over the corresponding period from December 31 2008.
Thankfully for Bendigo, the costs of offering higher deposit rates to suck in the necessary funds to then lend out to customers fell by more, in both cash terms ($746 million) and percentage-terms to offset the large drop in interest income.
That was a direct result of the sharp cut in official interest rates which meant that all the banks – not just Bendigo – were able to lower the rates that they had been offering to depositors thus reducing the price of doing business in this key area of funding.
But in Bendigo’s case, this was of greater importance given that the bank relies on deposits for more than 80 per cent of its funding – a figure which is significantly higher than the big four banks, and one which has jumped over the last couple of years as the regional group has been forced to reduce its reliance on the securitisation markets.
This is by no means a bad thing and Bendigo is well within its rights to argue that it is a positive in its case.