Bendigo and Adelaide Bank (ASX:BEN) reported first-half fiscal 2026 cash earnings of AUD 256.4 million, up 2.8% from the prior half, as management pointed to “intensive strategic execution,” tighter margin management and a sharp reduction in second-quarter operating costs compared with the first quarter.
Chief Executive Officer Richard Fennell led the briefing in place of CFO Andrew Morgan, who tested positive for COVID. Fennell said momentum is building and is expected to support stronger balance sheet growth in the second half, supported by continued customer growth and improving application flows in residential mortgages.
Income reaches AUD 1 billion mark as NIM improves
Net interest margin (NIM) increased 4 basis points to 192 basis points. Management said asset pricing reduced NIM by 3 basis points due to front-book pricing pressure in residential lending and retention pressure in business and agribusiness, while deposit and funding pricing improved by 3 basis points, largely from term deposit repricing. Mix contributed a 4 basis point benefit, reflecting improved funding and asset mix. Fennell said exit NIM was slightly higher than the second-quarter average.
Looking ahead, management said it expects some NIM pressure as lending volumes improve in the second half and as the bank potentially leans more on wholesale funding or term deposits to fund growth. Fennell also said higher swap rates could turn replicating portfolio contribution “from flat to slightly positive,” but emphasized that competitive pricing dynamics remain the key unknown.
Deposit mix shifts toward lower-cost funding; customer growth continues
Fennell highlighted strong customer growth, with the bank expecting to reach 3 million customers in the fourth quarter. He said Bendigo Bank and Up net promoter scores are 25 and 42 points above the industry average, respectively.
Management emphasized progress on its “deposit-first” strategy. Lower-cost deposits grew 3.6% to represent 53.8% of total customer deposits. Digital deposit sales accounted for 41.4% of total deposit sales, an increase of 7.4% over the half, and the bank is targeting 45% by year end.
On broader deposit trends, management reported:
- Overall deposit growth of 1.1% for the half, with improved mix toward savings and away from term deposits.
- EasySaver balances up 7% and overall savings accounts up 5%.
- Transaction account balances recovering in the second quarter to finish marginally higher than the prior half.
- Offset accounts up 5%, which management partly attributed to tax receipts.
- Term deposit balances down 4% as funding needs were managed lower.
- Lower-cost deposits rising to almost 54% from 52.4% six months earlier.
Management also noted the household deposit-to-loan ratio remained strong at 77%, described as nine percentage points above the industry average.
Residential mortgages: runoff from legacy partners, but improving momentum
Residential lending declined 2.6% over the half, which management attributed to a strategic decision to exit less profitable legacy mortgage partner businesses in third-party originated channels. That channel contracted 7.4% over the period, while the bank’s digital lending channel grew 6%.
Settlement volumes were down 15% versus the prior half, particularly in third-party channels, and discharges were elevated due to the closure of one partner channel. Management said it is prioritizing capital deployment into higher-returning channels, including self-serve digital mortgages and broker-intermediated lending via the new lending platform.
Fennell said mortgage book trends were improving, citing that around 40% of new loans were below 60% loan-to-value ratio (LVR) and almost 90% were below 80% LVR. He also said the average credit risk weight on new mortgages continued to improve and that risk-adjusted returns on new business had improved compared with four months earlier.
Management pointed to improving application momentum, with applications per day strengthening through the second quarter, December delivering the strongest daily volume, and January showing positive growth. The bank said it was targeting housing growth “around system” toward the end of the second half of fiscal 2026.
Costs, productivity measures, and Up profitability milestone
Operating expenses increased 4.2% for the half, reflecting higher software costs and amortization, additional work days, and higher remediation expenses. However, second-quarter expenses were 6.4% lower than the first quarter, which management attributed partly to seasonal first-quarter items such as annual salary adjustments and tighter cost management.
Management said investment spend declined 19% over the half as major technology projects, including the lending platform rollout, concluded. The bank also highlighted progress in its productivity program, including a 48% reduction in contractor numbers and a 5% reduction in full-time equivalent employee numbers versus the prior corresponding period (and 4% lower over the half). It said operational excellence initiatives within operations teams delivered an AUD 9.6 million benefit in the half.
Fennell also highlighted Up achieving its first month of profitability in September, more than six months ahead of schedule, calling it evidence that digital investments are “creating value.” The bank also discussed a new five-year partnership with Google to enhance cloud capability, AI tools and cybersecurity. Management said more than 2,200 employees are already using Gemini AI tools and cited use cases such as generative AI for hardship detection.
AML/CTF remediation, RACQ Bank acquisition, capital and dividend
Management provided an update on deficiencies in its anti-money laundering and counter-terrorism financing (AML/CTF) risk management, which the bank said it identified and self-reported. Fennell said the issue stemmed from suspected money laundering activity through one branch, which the bank reported to authorities and law enforcement, and that Deloitte’s subsequent review identified deficiencies that “had allowed this to occur.” He said AUSTRAC had initiated an enforcement investigation and APRA imposed an AUD 50 million capital overlay.
The bank appointed Steve Blackburn as Chief Compliance Officer and Head of Financial Crime Risk, and said Deloitte has provided recommendations and a remediation roadmap. Management estimated total remediation costs of AUD 70 million to AUD 90 million over up to three years, with an initial AUD 15 million expected in the second half of fiscal 2026. The bank said these costs would be contained within its existing fiscal 2026 investment slate. Deloitte is also conducting an additional root cause analysis across broader non-financial risk management, with findings expected later in the half.
On strategy and growth, Fennell reiterated the planned acquisition of RACQ Bank’s loan and deposit books, describing it as an opportunity to expand in Queensland.
Capital strengthened over the half, with CET1 rising 37 basis points to 11.37% (management also referenced a CET1 ratio of 11.3% during the discussion), supported by lower capital consumption from reduced lending. The bank said capital remains above its board target of above 10%. Directors declared an interim dividend of AUD 0.30 per share, fully franked, representing a 67% payout ratio and flat in cents per share versus the prior comparative period. As a “prudent measure,” management said it would underwrite around 70% of the dividend, retaining approximately 31 basis points, or about AUD 120 million, of CET1 capital following the interim payment.
About Bendigo and Adelaide Bank (ASX:BEN)
Bendigo and Adelaide Bank Limited provides banking and financial products and services to retail customers and small to medium sized businesses in Australia. The company operates through Consumer, Business and Agribusiness, and Corporate segments. It offers a range of products and services, including personal and business banking, financial planning, commercial mortgages and unsecured loans, investment products, insurance, and superannuation. The company also provides retail banking products and services; home loans for the mortgage broker and mortgage manager market; rural bank products and services; wealth management services; investments and funds management services, commercial loans, access to funeral bonds, estates and trusts management services, and corporate trustee and custodial services; and banking products and services to agribusiness participants.
