Bendigo downgrades profit
(8 April 2009 – Australia) Bendigo and Adelaide Bank has lowered its profit forecasts due to an adjusted strategy to deal with slowing economic conditions and tightening margins.
The bank’s management downgraded full-year profit from about $270 million to cash earnings of between $205 million and $218m.
The bank said that given the change in market conditions, it took action and responded decisively to secure reliable retail funding. While the bank secured that funding, it was done at a cost to financial year 2009 earnings.
The bank’s changed its strategy for funding and increased retail deposits to a level that now represents nearly 90 percent of the bank’s on-balance sheet funding.
Bendigo, despite its strategy to ensure stability through retail funding, is doing it tough when it comes to margins.
The bank said that assets have not been re-priced in line with increased costs, and this has contributed to a continued deterioration in net interest margin (NIM) for the bank.
A rapidly falling official cash rate has only compounded these issues, as fixed rate term deposits continue to add a lag effect to the weighted average cost of the liability book, the bank said.
More than 86 percent of maturing accounts are currently being written to new Term Deposits within the bank, increasing margins by rolling term deposits over to much lower interest rates.
Securitisation costs have risen over the period, leading Bendigo to reduce this source as a proportion of total funding, and this is expected to reduce the overall impact this has on NIM in the future.
The bank's chairman, Robert Johanson, said that the bank expects that margins will be recovered by June.
The bank said that given the change in market conditions, it took action and responded decisively to secure reliable retail funding. While the bank secured that funding, it was done at a cost to financial year 2009 earnings.
The bank’s changed its strategy for funding and increased retail deposits to a level that now represents nearly 90 percent of the bank’s on-balance sheet funding.
Bendigo, despite its strategy to ensure stability through retail funding, is doing it tough when it comes to margins.
The bank said that assets have not been re-priced in line with increased costs, and this has contributed to a continued deterioration in net interest margin (NIM) for the bank.
A rapidly falling official cash rate has only compounded these issues, as fixed rate term deposits continue to add a lag effect to the weighted average cost of the liability book, the bank said.
More than 86 percent of maturing accounts are currently being written to new Term Deposits within the bank, increasing margins by rolling term deposits over to much lower interest rates.
Securitisation costs have risen over the period, leading Bendigo to reduce this source as a proportion of total funding, and this is expected to reduce the overall impact this has on NIM in the future.
The bank's chairman, Robert Johanson, said that the bank expects that margins will be recovered by June.
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