Page 1 of 6

Christine St Anne is Morningstar's online editor and Nicholas Grove is a Morningstar journalist.

Bendigo's cash earnings "slightly disappointing," dividend flat

Bendigo and Adelaide Bank (BEN) recorded a 3.9 per cent fall in cash earnings - a preferred measure of underlying performance among the Australian banks - to $323 million for fiscal 2012.

The result was short of Morningstar's forecast cash earnings of $339.2 million.

Cash earnings per share were down 8.7 per cent to 84.2 cents for the year, the bank said.

The bank declared full-year dividends of 60 cents a share, fully franked, unchanged on the previous year and in line with Morningstar's expectations.

Morningstar sector head of financials, infrastructure, insurance and property, David Ellis, described the result as "slightly disappointing".

"The fiscal 2012 performance is solid at best and highlights the tough market position the regional banks face compared to their major bank peers," Ellis said.

"Return on equity (ROE) is a problem, and Bendigo suffered again with cash ROE declining from 9.1 per cent in fiscal 2011 to 8.4 per cent in fiscal 2012."

Bendigo and Adelaide Bank managing director Mike Hirst said the past 12 months had continued to be challenging for all Australian banks.

"We have been able to limit net interest margin contraction through prudent and proactive balance sheet management. We have sought to price both assets and liabilities in the most appropriate manner for all stakeholders," Hirst said in a statement.

"This has been combined with an active hedging program which, while expensive, has successfully mitigated the risk of significant margin volatility over the period.

"High funding costs and low demand for credit has been felt across the sector, but despite this, Bendigo and Adelaide Bank continues to grow and invest in the business."

Despite these pressures of high funding costs, net interest margins (NIM) fell only 7 basis points over the year, the bank said.

Operating expenses grew by just 1.1 per cent over the year, the bank said. However, due to deteriorating revenues, the cost-to-income ratio increased to 59.1 per cent, versus 57.4 per cent in fiscal 2011.

The bank said it is maintaining its long-term cost-to-income target of 55 per cent, and as part of its continued cost focus, executives will forego their short-term incentive bonuses for fiscal 2012.