In their business strategy and trading update today, they recapped on lending growth which has been below system, and that they have a cost to income ratio which is still high (~2% above Suncorp).
NIM is under some pressure.
However, the bank is quite well positioned from a funding perspective. 81% is deposit funded, could go higher, this is significant because RMBS market funding pricing is line ball at the moment. They have moved from 20% to 6% RMBS, and this has created a capital headwind, so they will most likely focus on senior funding.
In terms of Strategy, Bendigo and Adelaide Bank, describes its aim to build around customer engagement and staff engagement, with an expectation that digital channels and customer centricity will out.
They are driving towards 24/7 digital platform, underpinned by their core banking system. Their vision is to be the most customer connected bank with a focus on customer service and the strengthening of core relationships.
However it is clear they are banking on benefits of moving from standard to advanced IRB capital model. Whilst they may wish to move to this basis, and this may be a phased implementation, it will be APRA who is holding the implementation cards. There is a benefit as their current mortgage risk weighting is about 39 basis points, whereas the major banks have a 25 basis point target by July 2016.
Homesafe will continue to be a drag on the business if property valuations in the major centres fall as the portfolios have to be marked to market, they of course had upside in the good times! 3Q16 Homesafe contribution was -$1.6m pre-tax. There are 2,500 contracts in the portfolio, average $125,000 funded.
Lending will be important and they wish to grow their books, with a focus on mortgages and small business (both highly contested areas). Arrears on mortgages and business seem under control.
They have a significant investment path in order to build the digital platform and IRB models. Restructure costs will be $2m or more in the half. The question will be whether the benefits out way the costs. You cannot really argue with the strategy, (though, it is not really a mobile first strategy), but its all about effective execution in a highly contested environment. The high customer satisfaction ratings will certainly assist.
