Bendigo and Adelaide Bank boss Mike Hirst has defended the massive profits his industry makes, insisting they need to grow at least 12 per cent.
Mr Hirst’s comments on Monday echoed those of fellow bank bosses who have come under political attack for hiking interest rate rises while presiding over huge profits.
He said bank profits need to grow by more than 12 per cent to enable the industry to raise capital while continuing to grow their earnings and remain well capitalised.
“The cost of capital’s around 12 per cent, so it needs to be in excess of that,” Mr Hirst he told analysts after Bendigo posted a 67 per cent drop in first half profit.
“If not, then banks can’t raise the capital they need to be able to grow. Should it be 20 per cent, should it be 15 per cent? I think that’s the real debate that people should be having.”
Bendigo’s net profit fell to $57.9 million in the six months to December 31 from $173.9 million in the previous corresponding period.
A 67 per cent fall in the value of Bendigo’s margin lending portfolio, along with a revaluation of its wealth management division, drove the profit decline.
Its cash earnings were $162.6 million, up 0.3 per cent on $162.1 million a year earlier, and slightly ahead of market expectations.
Mr Hirst said Bendigo increased interest rates on mortgages by 15 basis points in early February to reposition itself in the market and to cover the higher costs of deposits.
But unlike his banking peers, he said funding costs should decline in coming months.
“I would expect to see some decrease in funding costs over the next 12 months and, with that, perhaps an increase in the demand for credit,” he said.
Like other bank bosses, Mr Hirst pointed to the need for lenders to satisfy the interests of all stakeholders, including shareholders, when deciding interest rates charged to borrowers and paid to depositors.
Most banks had absorbed the higher funding costs in the six months to February rather than pass them on to borrowers, and recent rate hikes would not be enough to recoup all the cost increase, he said.
The bank’s net interest margin, an indicator of profit made on loans, fell by six basis points in the first half from the preceding six months, but Bendigo’s 15 basis points interest rate rise two weeks ago will address some of the margin fall.
Unlike ANZ Banking Group and Westpac, Bendigo had no plans for mass job cuts despite more than half its costs coming from staff expenses.
“We have no plans for wholesale redundancies, although there are always one or two happening here and there as we adjust the business to suit the current time that we’re in,” Mr Hirst said.
The bank declared a fully-franked interim dividend of 30 cents per share, in line with a year earlier.
Bendigo’s stock gained 12 cents to $8.14.
