Bendigo and Adelaide Bank (ASX: BEN) is the 5th largest retail bank in Australia. Bendigo has around A$71.4 billion of assets under management and around 1.7 billion customers. Bendigo has a market capitalisation of A$3.4 billion.

What has Bendigo announced today?

Bendigo announced today (16 April 2020) withdrawal of its 2H20 financial outlook commentary because of COVID-19. Bendigo management notes that this decision is based on the level of uncertainty created by the COVID-19 pandemic, the difficulty this presents in providing future guidance and, like other banks, Bendigo’s inability to make a reasonable assessment in the current environment of the impact on credit provisions under the recently implemented accounting standards.

Bendigo’s management notes that the company’s balance sheet is strong and has a capital position well above APRA’s benchmark target. This should allow Bendigo to navigate through this challenging environment.

In some positive news, Bendigo’s launch of a A$300 million capital raising in February 2020 that was successful. This comprised a fully underwritten A$250 million institutional share placement and a non-underwritten share purchase plan under which Bendigo is targeting to raise approximately A$50 million. The successes of this equity raising should allow Bendigo additional liquidity to operate in this challenging environment to deal with future short-term challenges of COVID-19.

What has the RBA to help the economy and the banks in this challenging environment?

The RBA has used its full range of policy tools to assist the economy and the banking sector in this troubled time. Most notably, this includes reducing the cash rate to 0.25%, an asset purchasing plan (Quantitative Easing) to purchase Australia government bonds to target the 3-year bond rate at 0.25% (in line with the current cash rate) and the RBA has injected substantial liquidity into the financial system through its daily open market operations and the term funding facility to support the flow of credit through the economy.

What is the overall assessment of the Australian banking sector?

The banking sector face significant headwinds including the economic impacts of COVID-19, slow credit growth (also reflecting weak economic growth), pressures on net interest margins (which could lower profitability) and increased regulatory requirements (both capital and lending requirements). That is, in the short term at least, the banks may have lower growth prospects than other sectors of the market and there is a significant risk that bank dividend payments could fall over the next year or so.

What is the market reaction to Bendigo’s announcement?

The market reaction to Bendigo’s announcement is negative. Bendigo share price is down around 3%. However, this could be partly attributed to the Australian market being down today around 1.3%.

 


 

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April 16, 2020