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Bendigo and Adelaide Bank Ltd (ASX:BEN): The best bank share to buy now?

Expectations are building ahead of Bendigo and Adelaide Bank Ltd’s (ASX: BEN) full year results on Monday after the profit announcement from banking heavyweight Commonwealth Bank of Australia (ASX: CBA) fired up the sector.

Shares in Commonwealth Bank jumped 2.6% to a more than one-week high of $74.81, which dragged up the S&P/ASX 200 Financials (Index:^AXFJ) (ASX:XFJ) by 0.5%.

Commonwealth Bank and Bendigo Bank are the only two banks that will hand in their full-year earnings report card this month, and they both have something else in common – a new chief executive officer.

This means Bendigo Bank may also seek to reset market expectations when it unveils its earnings next week.

Investors will be keenly awaiting to see if Bendigo Bank can also deliver a pleasing result that will trigger a share price rally that will allow it to pull further ahead of the pack.

Bendigo Bank’s share price has outperformed its peers with a 4% gain over the past year, while shares in the big four, which also includes National Australia Bank Ltd. (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC), are wallowing in the red.

What could make or break Bendigo Bank’s results are four key things, according to Credit Suisse. The first is a potential executive reshuffle and a new strategic direction for the bank.

Commonwealth Bank did a reshuffle under its new boss Matt Comyn, and while it isn’t likely that Bendigo Bank will need to do one as it isn’t under the same regulatory stress from the Banking Royal Commission, you can’t rule it out.

The second thing to watch for is the potential drop in revenue on weaker volumes, lower fee income, and a squeeze on net interest margin (NIM).

The Commonwealth Bank managed to defy sceptics to increase its NIM by 5 basis points to 2.15%, and I suspect Bendigo Bank will get a share price uplift if it can pull off the same trick.

One way it might be able to pull that rabbit out of its hat is through its cost management program. Credit Suisse is expecting a “reasonable” outcome here, so the bank has a chance to make a big positive impression on this front, although some seasonal factors could work against it.

The last factor to watch for is the growth in its loan book. The market is expecting growth to be below the sector, but the silver lining could be a corresponding boost to its common equity tier-1 (CET1) ratio, which is a security buffer required by bank regulators.

But with the stock already performing relatively strongly (Bendigo Bank trades at around a 5% premium to the big four banks versus its historical 3% discount to the majors), there may not be that much room for the stock to run higher – unless it can produce significantly better news than the Commonwealth Bank.

No pressure there for Bendigo Bank’s new head Marnie Baker.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, National Australia Bank Limited, and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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