Bendigo Bank interim profit announcement

Bendigo Bank's interim operating profit after tax was $11.0 million, a 30 per cent increase on the corresponding period last year.

Chairman Richard Guy said the profit increase was in line with a 30 per cent growth in the Bank's business in 1999.

Mr Guy said the Bank's strong organic growth had been further boosted by solid profit contributions from recent initiatives including the joint venture company Elders Rural Services Limited, Community Bank, and the acquisitions of IOOF Building Society and the Ballarat-based Victorian Securities Corporation Limited.

"This result represents an endorsement of the capacity of our strategies to develop strong and sustainable returns for all our stakeholders," Mr Guy said.

"Many of these initiatives are in their infancy and have considerable growth potential, yet already they are producing healthy earnings.

"We expect income from these areas to grow as Community Bank expands and as further bank products are made available to customers of ERSL, IOOF and Victorian Securities.

"New markets will continue to be added, particularly where the Bank feels it can excel. Organic growth, too, remains strong and the Group is well-placed to continue to grow earnings into the future."

Mr Guy said the board acknowledged that earnings growth needed to be strong to service the Company's increased capital base.

"Share capital grew by 45 per cent during calendar year 1999 as we took on capital In order to finance our investment program and support the rapid growth in our balance sheet.

"In the short-term, this puts pressure on performance measures, but profit growth achieved has resulted in only minimal impact on earnings per share."

Mr Guy said the interim dividend of 10.5 cents per share (fully franked at 36 cents, payable in April), was the same as last year.

Detailing the interim result, Group Managing Director Rob Hunt said operating profit before income tax and abnormal item was $19 million, up by 65 per cent on the $11.5 million for the corresponding period in 1998.

He said the after-tax profit had been affected by a revaluation of future income tax benefits to take account of the pending lower company income tax regime.

Mr Hunt said total bank lending approvals were $925 million, a 16 per cent increase. Sixty-three per cent of total approvals were secured by mortgage over residential property.

"Our business continues to grow in a strong but controlled fashion,"Mr Hunt said. "Total assets grew by 7.5 per cent during the half and by 30 per cent over the year to 31 December, when they were just over $4.5 billion.

"Provision for doubtful debts at December represented just 0.55 per cent of gross loan balances.

"At the same time, we were able to increase our general provision by $2.4 million during the half to progress towards the APRA-preferred level of 0.50 of risk-weighted assets, net of FITB.

"Over the past few years, we have gradually built this provision to the point where it was 0.46% at 31 December. We expect to achieve our target ratio by 30 June, which will result in an ongoing benefit to Group profitability."

Mr Hunt said the Bank's retail deposit raising continued to be successful in "a highly competitive environment for investors' funds". "Total Bank deposits grew by eight per cent to $4.1 billion during the half, and we were able to increase the ratio of retail funds from 80 to 82 per cent.

"This has obviously helped control our cost of funds in a rising bond market and our interest margins held up well, having declined by just five basis points on the corresponding period in 1998."

Mr Hunt said the Group remained focused on a continued improvement in expense ratios following a decline from 76.9 per cent to 72.4 per cent in the cost-to-income ratio over the 12 months.

"In the four years since becoming a Bank, we have pursued strategic investments which not only enhance our standing as a regional and community bank but also generate income and have the potential to grow those income streams.

"Recent investments include IOOF Building Society, ERSL, Victorian Securities, Community Bank and our continued rollout of new technology. But while this investment program contributed to a 22.5 per cent increase in operating expenses in the year to 31 December, net operating income grew by 30 per cent in the same period.

"These investments are already income-positive and all have considerable upside potential.

"Bendigo remains committed to developing metropolitan, regional and community markets in which we have a natural advantage and in which we can add value for consumer and business customers.

"Our strategies have assumed a very clear focus which will be further apparent in the gradual expansion program we are following.

"During 2000 we will continue to open both company-owned and Community Bank outlets in regions in which there is clear consumer support for our style of banking operation.

"We will also actively pursue internet and electronic banking options to service our growing customer base."

Looking ahead, Mr Hunt said: "The intense competition and margin pressures in banking remain, but the Board expects to maintain our first-half profit in the second half.

"And given the prospect of increased earnings from our investments in areas such as technology, Community Bank and joint venture initiatives, the outlook for Company performance is positive in the longer term."