Bendigo Bank suggests ‘incentives’ for lenders providing branch banking services in regional Australia

Bendigo and Adelaide Bank believes lenders with bricks-and-mortar networks should be rewarded to help offset the growing cost of running branches in regional Australia.

Disclosing a weaker interim result that included better lending and deposit growth, Bendigo boss Richard Fennell suggested government should give consideration to incentivising those banks providing physical services to country customers.

Bendigo operates Australia’s second biggest regional branch network behind Commonwealth Bank but, like its bigger rivals, it has been forced into closures because of the growing adoption of digital banking.

Mr Fennell said operating bank-owned and community bank branches — Bendigo operates the latter in partnership with local communities — in regional Australia came at “a not insignificant cost”.

“We do think there needs to be a debate about an appropriate way to maybe incentivise those of us that do ... make physical banking available across this country,” Mr Fennell said.

“Because not everyone wants to bank digitally. The vast majority of people do, I get that.

“And there are people that still do rely on physical banking, we see that as an important part of our service offering.”

Mr Fennell would not be drawn on how such as a rewards system would work, but said “an incentives-based framework to continue to make sure physical banking is available for the vast majority if not all Australians” was “an important debate to be had”.

Bendigo’s interim results showed a 3.3 per cent fall in cash profit to $256.4 million as business and mortgage lending weakened during the six months on a year earlier.

Bendigo shares were 1.3 per cent lower at $11.30 as at 11.40am.

The bank’s share of the residential lending market fell to 2.61 per cent from 2.79 per cent 12 months earlier, while its business share dipped to 1.21 per cent from 1.28 per cent.

Operating expenses rose 6.4 per cent.

However, the bank focused on the improvements recorded since the end of June, calling out better margins and 1.1 per cent growth in customer deposits, and new momentum in residential lending off the back of a strong month of applications in December.

“We’re looking forward to getting lending growth back, and costs in the second half will be no higher than the first half,” Mr Fennell said.

He acknowledged that as the big banks stepped up competition for customers, smaller lenders such as Bendigo were hampered by the higher cost of funding loans and their increasing investments in service and technology.

“There are challenges with being smaller, there are scale efficiencies that we don’t have access to,” Mr Fennell said.

But “there are some levers that we can pull”, he said, citing a recent partnership with Google that gives Bendigo access to leading technology, including cyber security, that it can not afford to build on its own.

Directors declared an unchanged interim dividend of a fully franked 30¢ a share.