Bendigo and Adelaide Bank has delivered a better than expected profit in the face of growing competition and customers getting ahead on loan repayments.
The regional bank's full year cash earnings rose by 10 per cent to $382.3 million, above the $376 million expected by analysts.
But it was the company's profit margin on its loans, which grew by five basis points to 2.14 per cent - that really impressed the market.
The increased margin was surprising, given strong competition among the big four banks for new customers was expected to push margins lower across the banking sector, IG market strategist Evan Lucas said.
"They've managed to somehow keep their noses clean with regards to the fist fight that's going on in that space and that's quite impressive," he said.
Shares in Bendigo climbed 28 cents, or 2.3 per cent, to $12.46.
Managing director Mike Hirst said competition in the financial sector was increasing, especially with new entrants into the payments market, but the bank was focused on sustainable growth.
"We don't see that the market is going to get any less competitive on the asset side, we'll stick to our knitting and make sure we are growing the balance sheet at profitable prices," he said.
New loan approvals grew by 16 per cent during the year, but Bendigo's performance was impacted by customers taking advantage of low interest rates to pay down debt on their home faster than necessary.
"The issue for us is that the repayments our customers have been making over and above what they need to do under their schedule has also been pretty strong," he said.
"It does make it more difficult for our branches to achieve their growth targets but it's a fantastic result for our customers if they can build that excess capability into their loans."
Mr Hirst said the bank's long term prospects could be boosted by the outcomes of the federal government's inquiry into the financial system, which he expects will include a call for lower amounts of capital required to be held by smaller lenders, in order to increase their competitiveness.
"We will see, I think, a levelling of the playing field and we are very well positioned to take advantage of that," he said.
BENDIGO BANKS ANOTHER SOLID PROFIT
* Net profit of $372.3m, up six pct from $352.3m in 2012/13
* Cash profit of $382.3m, up 10 pct from $337.6m
* Final dividend of 33 cents, up two cents
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