Bendigo Bank’s results reveal the pressures on Australian lending margins

Photo: George Rose/ Getty Images.

There’s one earnings benchmark going just one way for Australian banks — the continued slide in net interest margins (NIM), a key measure of lending profitability.

Bendigo and Adelaide Bank is the latest to showcase how far Australian lenders are from slaying the margin demons. It’s NIM — the difference between interest earned from loans and that paid on deposits — slid to an at least four-year low of 2.10% in the second half of 2016, a 6 basis points drop from six months earlier. Its half yearly profit climbed 0.4% to $224.7 million, the lender said.

This chart shows sliding NIMs


Australian banks are resorting to cost and job cuts to prop up profits. Ultra-low interest rates are also keeping their asset quality in shape, allowing the banks to reduce the need to provide for sour loans, which in turn is adding to profits. With loan growth slowing, analysts at Macquarie say the banks may need to cut more jobs to save costs.

These charts show cost controls and falling provisions



The limited ability to cut deposit rates as investors hunt for yield in a low rate environment is more than offsetting the hike in mortgage rates, Bendigo said in a statement.

Australian banks raised home loan rates last year citing funding costs. The largest banks are staring at eight-year low NIMs.

National Australia Bank last week said margins were “broadly stable” even after the interest rate rise. Commonwealth Bank of Australia, the biggest lender in the country, reports earnings on Wednesday.

Bendigo said its expense to income ratio dropped almost 2 percentage points to 54.3% and it set aside $303.3 million for bad and doubtful loans in the first half compared with $325.6 million six months earlier.