Bendigo and Adelaide Bank boss Mike Hirst is warning homeowners there is a limit to how far interest rates can fall.
After announcing a 17 per cent lift in first half cash earnings, Mr Hirst said it was time to talk about how much further banks could cut their rates, after this month's move by the Reserve Bank to a new record low.
"There's a discussion that has to happen with the community about how low rates can actually go," he said.
"Margins have to be made, home loan rates can't go to zero."
Most banks passed on the Reserve Bank's February cash rate cut, and economists and futures markets are tipping a further RBA cut in March.
Bendigo's net interest margin - a measure of the profit it makes on loans - was steady at 2.14 per cent during the six months to December 31.
That's a better result than Commonwealth Bank achieved in the same period, when its margin fell two basis points to 2.12 per cent.
But Mr Hirst said competition among banks was tough, especially for loans provided by third-party mortgage brokers.
"That third party business is really where the competition is hottest because the reality is, other than price, there are very limited levers to pull to attract customers there."
Bendigo's half year cash earnings rose 17 per cent to $218 million, while net profit was up nearly 26 per cent to $227 million.
Total lending rose 7.5 per cent during the half, which was stronger than the growth recorded by the big four banks in the same period, Bendigo said.
But Mr Hirst said customers had been quicker in paying off debt, which had hurt housing lending growth.
"Whilst demand for housing loans is solid, we are seeing an increase in customers paying down their debt across all portfolios," he said.
"While this impacts the bank's growth, it's fantastic for our customers as they're building equity and greater financial wealth, particularly as interest rates have fallen."
Bendigo's home lending increased 3.2 per cent during the half, while business lending rose 19.7 per cent, also ahead of its big four rivals.
Bendigo shares dropped 64 cents, or 4.45 per cent, to $13.74.
BENDIGO BANK LIFTS EARNINGS AND DIVIDEND
* Cash earnings up 17pct to $217.9m
* Net profit up 26pct to $227.3m
* Interim dividend up two cents to 33 cents per share
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