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Bendigo disappoints markets as margins come under pressure

Bendigo and Adelaide Bank chief executive Marnie Baker has defended an increase in costs by saying the lender’s main focus is on growth, after the regional bank flagged rising expenses and pressure on its margins.

Bendigo shares plunged almost 10 per cent on Monday, after the lender warned of “headwinds” to its profit margins as a result of stiff competition for new loans. They closed the session at $10.

Bendigo and Adelaide Bank managing director Marnie Baker: “We’re focused on growing the business while we have that opportunity to grow.”

Bendigo and Adelaide Bank managing director Marnie Baker: “We’re focused on growing the business while we have that opportunity to grow.”

The drop in its share price came despite cash earnings rising by 51.5 per cent to $457.2 million for the full-year, and a sharp increase in its dividend.

The bank’s net interest margin – which compares the cost of funding with what it charges for loans – dropped 7 basis points to 2.26 per cent, due in part to growth in fixed-rate loans and stiff competition on new business.

At the same time Bendigo said its operating costs would be about 3 per cent higher in 2022 due to expenses linked to a fintech acquisition, and other technology costs.

Amid a mixed reaction from analysts, Ms Baker defended the increase in costs by saying this was needed to fund the bank’s growth, including its digital strategy. In the mortgage market, Bendigo expanded rapidly, at 2.8 times the average pace across the industry.

“We’re focused on growing the business while we have that opportunity to grow, which we do,” Ms Baker said.

“However, we are needing to still continue to invest and have some expenses that are supporting… the extraordinary growth that we’re actually seeing.”

In a sign of its plans to compete against fintech disruption, Bendigo also said it would buy out Ferocia, its partner in the neobank Up, for up to $116 million in Bendigo shares. Ms Baker said the deal would allow Bendigo, which is also part owner of digital lender Tic:Toc, to roll out more products on Up.

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