Bendigo beats the biggies

Long hiding in the shadows, Bendigo and Adelaide Bank (BEN) has emerged as a standout performer in the world of financial services.

In a landscape where for the past six years the four major predators have battled it out for dominance, the much smaller regional has darted in undetected and snared a series of significant prizes.

A 7.7% lift in cash profit to $384 million was impressive enough. But drilling down into the result reveals a swathe of impressive growth measures.

The net interest margin – which has become a key measure of bank performance – lifted to 1.86%, far better than the anticipated 1.84%.

That has been a significant battleground between the big four and an area of particular concern, as witnessed last week when ANZ admitted is margins were under pressure after declining 2 basis points.

The majors have attempted to counter the margin squeeze by pulling in a greater share of deposits and that is the one area where Bendigo and Adelaide appears vulnerable. Deposit growth grew 3% compared with 5.8% across the banking system.

But on every other measure, Bendigo and Adelaide reigns supreme. In a market where credit growth has been the slowest since records first began, the regional operator easily beat its rivals with 4.8% growth versus 3.4% for the system.

It is clear the bank is stealing market share from its major rivals, as I had flagged in February this year in Mini-banks ready to motor. Business lending was a standout with a 9.6% lift, way above system growth of 2.5% while housing lending growth of 7.4% was well above the system’s 4.8% growth.

As Bendigo and Adelaide is a more diversified financier than its main regional rival Bank of Queensland, particularly with leveraged equities, it has far greater growth potential.

That was recognised by investors this morning. After decent results from Commonwealth and ANZ last week were greeted with a wave of selling, Bendigo and Adelaide this morning was in hot demand, up 1.4% to $10.75.