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Bendigo and Adelaide Bank announces annual profit


Bendigo and Adelaide Bank (BEN) has announced an after tax statutory profit of $195.0 million for the 12-months ending 30 June 2012. Cash earnings were $323.0 million, a decrease of 3.9 per cent over the prior corresponding period1. Directors announced a final dividend of 30 cents per share (fully franked), which is flat on the prior corresponding period2.

Bendigo and Adelaide Bank managing director Mike Hirst said the past 12-months had continued to be challenging for all Australian banks.

"Our core revenue generating businesses of retail, third party banking, wealth and rural banking continue to perform well, and we have been determined in our efforts to improve the funding and capital profile of the bank," Mr Hirst said.

"We have been able to limit net interest margin contraction through prudent and proactive balance sheet management. We have sought to price both assets and liabilities in the most appropriate manner for all stakeholders. This has been combined with an active hedging program which, while expensive, has successfully mitigated the risk of significant margin volatility over the period," Mr Hirst said.

"High funding costs and low demand for credit has been felt across the sector, but despite this Bendigo and Adelaide Bank continues to grow and invest in the business," Mr Hirst said.

The bank also announced the sale of the subordinated notes it holds in its TORRENS securitisation program. The sale of the entire portfolio of notes, with a face value of approximately $170 million, releases approximately $80 million of Core Tier One capital. This (together with the 8 August, 2012, sale of the bank’s 7.8 per cent interest in IOOF) has resulted in an additional 42 basis points of Core Tier One capital post the June 30 balance date.

"These non-dilutive capital management initiatives illustrate our commitment to managing a profitable, but ultimately low risk and prudent business," Mr Hirst said.

"We have further capacity to improve the efficiency of our capital structure through the issuance of a Basel III compliant Tier One Hybrid capital instrument – which we expect to launch sometime in 1H20133 - but even without this issue we are confident that our current capital structure will meet the requirements of the proposed Basel III capital standards.

"Focussing on the bank’s long-term performance and sustainability is central to our strategy and requires us to continually balance the interests of all our stakeholders. This strategy has been vindicated by recent credit rating upgrades from Fitch and Standard & Poor’s, and is in stark contrast to the rating momentum of many banks across the globe.

"I would like to thank our customers, staff, partners and shareholders for their contribution to Bendigo and Adelaide Bank’s results," Mr Hirst said.

Business performance

Funding costs remained high over the reporting period, with sustained competition for retail term deposits in particular. Despite these pressures NIM fell just seven basis points over the 12-month reporting period. The bank’s term deposit retention rates have remained consistently higher than 80 per cent, notwithstanding the bank continuing to adopt a less aggressive pricing structure than many of its competitors. Retail deposits grew by $2.1 billion over the six months to June 2012, and more than $4 billion over the past year.

The bank’s margin lending portfolio has now fallen more than 70 per cent since its pro-forma peak of more than $8 billion in 2007. While this decline is being replaced by asset growth in other portfolios (notably residential mortgages sourced through