Market update - Great Southern
Bendigo and Adelaide Bank (BEN) has released information on provisioning and credit quality relating to loans which form its Great Southern portfolio. Given the Bank has released these details, it has also released credit performance and provisioning levels for the group’s entire loan portfolio ahead of next week’s (August 10) annual results announcement.
A total of $20.2 million has been raised at June 30, 2009 in specific and collective provisions relating to loans which form the Great Southern portfolio.
BEN’s exposure to borrowers in Great Southern Managed Investment Schemes is approximately $550m, spread across 8,200 growers. These loans are full-recourse to each individual borrower, with an average exposure of less than $70,000 and are spread across every state and territory of Australia. The Great Southern portfolio represents less than 1.5 per cent of the total Bendigo and Adelaide Bank asset base.
The Board has raised the provisions as a prudent response to the likely credit performance of the portfolio.
BEN managing director Mike Hirst said Bendigo and Adelaide Bank had a proud history of industry-leading customer service, and would continue to engage with the relevant parties to determine what steps could be taken to protect its interests and those of its customers.
The Bank has established an internal taskforce to oversee the Great Southern portfolio; has recruited a specialist credit/structuring Executive to manage the project (reporting directly to managing director); established Board oversight of the project through a dedicated sub-committee; and appointed external legal and corporate advisors (Grant Samuel).
In addition, a help centre has been established to directly manage the questions and needs of the grower investors.
An additional $14.4m has been raised in specific provisions at June 30, 2009 due primarily to deterioration in asset values in the commercial property sector, and the effect this has had on the performance of a small number of loans held by the bank.
However, excluding these loans, credit quality remains generally sound across the group, with 90-day arrears showing an improving trend across the residential mortgages, consumer and commercial portfolios (excluding Great Southern). Credit quality in the margin lending portfolio remains excellent.
Trading conditions for the remainder of the bank are in line with forecasts provided in the April 2009 update.
Net Interest Margin continues to improve in line with April forecasts. Following the dislocation of global financial markets last year, the bank moved to restructure its balance sheet such that it is now predominantly funded through retail deposits. Consequently, while securitisation costs remain high, they represent a relatively lower proportion of the bank’s funding.
The additional collective and specific provisioning outlined above will impact on previously advised cash earnings of 70-75 cents per share for the financial year ended June 30, 2009. The impact represents approximately 8 cents per share, with forecast cash earning per share for FY09 now approximately 63 cents.
The business has also completed its impairment review, and doesn’t expect any goodwill impairment in FY091.
Full details of the financial and operational performance of the business will be provided on August 10, 2009 when the bank announces its annual results.
A PowerPoint presentation regarding this announcement is available on the ASX website.
1 Subject to final Audit Committee approval