The Bendigo and Adelaide Bank Ltd (ASX: BEN) share price has suffered in August. It's down by 16% in just two weeks.
For a business as large as Bendigo Bank, that's a significant fall in a short amount of time when the S&P/ASX 200 Index (ASX: XJO) hasn't been falling.
But, as investors, we can use rapid declines as an opportunity to buy shares of businesses at lower prices — if we think they are opportunities.
So, is Bendigo Bank an opportunity?
What happened to the Bendigo Bank share price?
In the middle of August, the regional bank reported its result for the 12 months to 30 June 2022.
It told investors that its statutory net profit after tax (NPAT) had fallen 6.9% to $488.1 million. Cash earnings after tax increased by 9.4% to $500.4 million. Total lending increased 7.7% to $77.8 billion, with residential lending growth of 11% (1.4 times the growth rate of the system).
Perhaps one of the most disappointing revelations from the result was the net interest margin (NIM) fall of 21 basis points to 1.74%. That means it dropped by 0.21%.
The NIM is important because it tells investors how profitable banks are on their loans. It compares the lending rate (for example, a mortgage) against the cost of the funding of that loan (such as savings accounts). If a customer had a Bendigo Bank savings account with an interest rate of 1.5% for $100,000 in the account and another customer had a $100,000 mortgage with a loan rate of 3.24% then the NIM would be 1.74%.
A falling NIM means that the bank's loan book is less profitable and, therefore, the bank is less profitable.
Management said that the NIM reflected the historically low interest rate environment. It said that variable and fixed rate residential loan competitive pressure was a detractor, but this was partially offset by improving funding costs.
Dividend
The board of the ASX bank share decided to declare a final dividend per share of 26.5 cents. That brought the full-year dividend to 53 cents per share, an increase of 6%.
At the current Bendigo Bank share price, it has an FY22 grossed-up dividend yield of 8.4%.
Is the Bendigo Bank share price an opportunity?
Bendigo Bank said that the positive impact of rising interest rates is flowing through to its NIM and will have a "more significant impact in FY23".
The bank is focused on improving its overall returns for shareholders. However, it acknowledged that credit growth is going to moderate and competition will remain "intense".
Despite inflation causing headwinds for costs, management aims to keep costs "broadly flat". However, it expects impairment expenses to return to historical averages over the medium term.
Considering the NIM is expected to help things in FY23, I think the sell-off could make this a good time to consider Bendigo Bank shares. However, I wouldn't expect a huge amount of capital growth, considering the nature of banking and how much of its profit it pays out as a dividend each year.
