Bendigo and Adelaide Bank posted a strong jump in annual profit, but faces increasing earnings pressures this year in an economy with low confidence.
The nation's biggest regional lender lifted its underlying cash profit by 7.7 per cent lift to $348 million on the back of increased net interest margins, a measure of the profit it makes on loans.
The bank's managing director Mike Hirst described the result as a solid one in difficult trading conditions.
It is able to lift its net interest margin by delaying passing on the Reserve Bank's rate cuts.
It has now made those cuts, and while the historically low rates were providing comfort to the bank's existing mostly retail borrowers, Mr Hirst said the effects were yet to be reflected in a return of consumer confidence.
"Consumer confidence and demand for credit remains low, and competition remains very strong for retail deposits," he said.
"Certainly if we had a resounding result one way or another at the election, you would hope there would be some more confidence emerge in the market.
"Ultimately low interest rates are good for banks because they lead to expanding economies and the creation of credit."
Morningstar analyst Ravi Reddy said there would be a negative impact on margins this year and that combined with subdued credit growth would put pressure on the bank.
He said while the bank had done well achieving higher revenue growth than cost growth, the four major banks were still more attractive for investors.
They were achieving better returns than the Bendigo Bank, reflecting their ability to source wholesale funding cheaper, he said.
One area of concern was an 18 per cent jump in the bank's exposure to bad debts to $37.8 million.
That is related to its exposure to struggling North Queensland cattle properties and increases in bankruptcies by investors in the collapsed Great Southern managed investment scheme.
Wholesale funding costs fell during the year and the bank had taken advantage by jumping into that market and issuing two senior unsecured debt offers, its first since the GFC.
Retail deposits fell slightly but still comprised 78 per cent of funding, giving it the freedom to issue debt and possibly also source funds through residential mortgage backed securities, the bank said.
It also grew its total lending by 4.8 per cent, outperforming the industry average 3.4 per cent.
Bendigo's net profit, including one-off effects, was up 81 per cent to $352.3 million.
Last year's figure was reduced by a $95 million writedown on its margin lending operations and wealth management division.
Bendigo shares gave up some early gains to be two cents higher at $10.62 at 1500 AEST.
