Bendigo and Adelaide Bank share price craters as net profit slumps 49%

Bendigo and Adelaide Bank Ltd (ASX: BEN) shares are on watch after reporting a 48.8% drop in full-year net profit after tax.

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The Bendigo and Adelaide Bank Ltd (ASX: BEN) share price has dropped by 4.86% in early trade after the Aussie bank reported a 48.8% slump in net profit after tax (NPAT).

Why is the Bendigo and Adelaide Bank share price falling?

Australia’s fifth-largest retail bank reported its earnings for the full-year ended 30 June 2020 (FY20).

While NPAT fell 48.8% lower to $192.8 million, cash earnings also slumped 27.4% to $301.7 million.

The group’s net interest margin (NIM) compressed 3 basis points (bps) to 2.33%. Total income on a cash basis climbed 0.9% from FY19 numbers to $1.61 billion.

Total lending climbed 5.1% to $65.3 billion with total deposits up 5.7% to $67.7 billion.

The bank’s consumer banking division outperformed with strong growth in retail lending totalling $3.1 billion. Lending applications jumped 50.3% with settlements up 18% on FY19.

Agribusiness lending climbed 1.3% despite a “challenging” year for Aussie agriculture with loan book growth supporting a higher NIM.

Bendigo’s business lending fell 6.7%, despite growing in the second half of the year thanks to Commercial Property Lending.

Operating expenses jumped 7.0% to $1.02 billion with a cost to income ratio up 350 bps to 62.7%.

Bad and doubtful debts (BDD) climbed to $168.5 million including a coronavirus collective provision of $127.7 million.

Excluding COVID-19 impacts, BDD comprised 8 bps of gross loans with the COVID-19 impact boosting that to 18 bps.

The Bendigo and Adelaide Bank share price has slumped following this morning’s announcement, which included a 33 bps increase in the bank’s common equity tier 1 (CET1) ratio to 9.25%.

The bank deferred its decision on a final dividend given the current uncertainty. 

Managing Director and CEO Marnie Baker noted the impact of COVID-19, record low interest rates and investment costs. Those factors weighed on earnings and forced a strategy change in FY20.

FY21 outlook

Management said market conditions “remain challenging” and couldn’t provide meaningful guidance for this financial year.

Foolish takeaway

The Bendigo and Adelaide Bank share price is down 31.49% for the year prior to this morning’s open. That’s a significant underperformance against the S&P/ASX 200 Index (ASX: XJO) which is down 8.4% in 2020.

The ASX bank share is worth watching as investors take in the latest results.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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