Regional Bank Pair To Push For Capital

Sydney Morning Herald

Tuesday October 28, 2008

Eric Johnston

THE regional lender Bendigo and Adelaide Bank will push ahead with a capital raising of up to $150 million to bolster its balance sheet in the face of volatile credit markets.

The chairman of Bendigo, Robert Johanson, told investors that the present conditions in financial markets were "very difficult and dangerous", but that the regional bank was well capitalised and had access to funding.

"In Australia we have largely avoided the underlying causes of the crisis ... but we are an inextricable component of the international financial system, and we too are being buffeted by the great disruptions in the US and Europe," he told the bank's annual meeting yesterday.

Bendigo had reacted by tightening lending standards and focusing on generating fresh deposits, he said.

About 74 per cent of Bendigo's balance sheet was now funded by retail deposits, compared with an average of about 50 per cent for the big four banks. The bank had also experienced about a $2 billion surge in deposits in recent months.

He said Bendigo would undertake a so-called soft capital raising, through the issue of hybrid shares while the bank was also considering underwriting a dividend reinvestment program.

Using these measures Bendigo had capacity to raise between $100 million and $150 million, analysts said yesterday.

At the end of June Bendigo's tier one ratio, a measure of its capital strength, stood at 7.52 per cent; it was 7.98 per cent a year earlier. Most Australian banks are targeting a tier one capital ratio of about 8 per cent.

Mr Johanson said that Bendigo had opted not to issue earnings guidance for the 2009 financial year given earnings "conditions in the market are really so turbulent".

"Unless we can be reasonably specific about the sort of guidance given, then we won't give guidance," he said.

However, he was confident earnings would improve during financial 2009. Bendigo recently unveiled a 40 per cent increase in net profit to $170.5 million for the year to the end of June.

Most of the profit jump came about on the merger with Adelaide Bank.

Mr Johanson warned that banks were now likely to deliver a lower rate of returns on their capital compared with the 20-25 per cent rates the market had become accustomed to in recent years. The fast rate of lending growth in recent years was unsustainable, he said.