SYDNEY — The Australian banking sector's fierce competition in mortgages has now shifted its focus to deposits. However, Bendigo & Adelaide Bank believes that its 25-year-old community bank model sets it apart from its rivals.
In the 12 months leading up to June, the Australian regional lender reported a net profit of 497 million Australian dollars (US$322.9 million), marking a 1.8% increase. During the same period, its net interest margin, an essential profitability metric, experienced a 20 basis point rise to 1.94%, with deposit pricing playing a significant role in this growth.
Bendigo's Chief Executive, Marnie Baker, acknowledged that competition has shifted from the lending side to the deposit side of the balance sheet.
"While the heightened competition is a reality we recognize, we firmly believe that our community bank model offers something unique that others simply don't possess," she shared with The Wall Street Journal.
Bendigo & Adelaide Bank's community bank model has allowed it to establish a strong connection with its local communities over the years. This close relationship not only provides a competitive advantage but also fosters trust and loyalty among customers. As a result, Bendigo remains well-positioned to navigate the evolving landscape of Australia's banking industry.
The Community Bank Model and Bendigo's Financial Strength
The community bank model, a franchise-type arrangement, has reached a significant milestone of 25 years in June. In this model, communities have the opportunity to open their own banks, with the support of Bendigo. Currently, Bendigo boasts 309 branches, and this model plays a crucial role in providing deposit funding while reducing the reliance on more expensive wholesale funding.
What sets the deposits obtained through this channel apart is their high quality and inherent loyalty. According to Baker, Bendigo's Chief Financial Officer, the household deposit-to-loan ratio stands at an impressive 69%. These factors combine to give Bendigo more capacity than many may realize.
Looking ahead to fiscal 2024, Bendigo anticipates that an increase in the cash rate would benefit its NIM (net interest margin). However, it also foresees challenges arising from increased competition for deposits, higher funding costs, and customers' preference for higher-interest savings accounts.
Baker acknowledges that competition will inevitably drive up the cost of funds, although the extent of this remains uncertain. Nevertheless, Bendigo has diverse channels at its disposal, particularly retail channels, which offer a more cost-effective source of funds compared to wholesale avenues.
A clear example of this is Bendigo's digital brand called Up. In fiscal 2023, Up recorded an impressive A$1.5 billion in customer deposits. This highlights the significance of new digital channels as a source of future deposits for Bendigo.
Overall, Bendigo remains well-positioned in terms of its financial strength and strategic approach. While challenges in the market are expected, Bendigo's community bank model and its diverse range of funding sources provide a solid foundation for continued success.
Retrieved from The Wall Street Journal, modified by AI.
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