High interest, lower demand to temper Bendigo and Adelaide Bank’s loan growth

BEN saw its loan growth contract 1.1% in H2 2022.

Rising interest rates and lower loan demand will temper the lending growth of Bendigo and Adelaide Bank (BEN) over the next 12 months, says S&P Global Ratings.

BEN, one of Australia's regional lenders, saw its loan growth contract 1.1% in the six months ending 31 December.

BEN's credit losses are expected to remain low at about 15 bps in the next two years, in line with the Australian banking system. BEN's credit costs in the six months to 31 December 2022 were minimal at less than 1 bps.

“The relatively benign economic outlook, low unemployment, and strong household balance sheets should temper the risks to the Australian banking system from rising inflation, geopolitical uncertainties, and low business and consumer confidence,” S&P said.

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The ongoing orderly correction in Australian house prices will continue over the next 12 to 18 months and should alleviate the risk of a sharp fall and consequent blow to the economy and financial system, S&P added.

“We expect BEN's capital position to remain strong, with a risk-adjusted capital ratio of 14%-15% in the next two years,” the ratings agency said, adding that the bank will manage its common equity tier-1 (CET1) ratio between 10% and 10.5% under Australian Prudential Regulation Authority's updated capital framework for banks, which took effect on January 2023.