As Bigger Banks Deflate, Smaller Cousins Have Cause To Celebrate

The Age

Thursday November 20, 2008

VANESSA O'SHAUGHNESSY, INVESTMENT REPORTER

AUSTRALIA'S regional banks are in excellent condition, having outperformed the Big Four over an immensely difficult period.

Releasing a study by audit, tax and advisory firm KPMG, financial services partner Martin McGrath said regional banks had increased profit before tax by 4.8% in their last full-year reporting periods.

For the same periods Australia's major banks reported a decrease in profit of 24.6%.

"It's a really good story," Mr McGrath said. "Outstanding, in context."

The study included the merged Bendigo and Adelaide Bank, Bank of Queensland, Suncorp-Metway's banking division and Elders Rural Bank as well as St George - before the completion of its merger with Westpac. Together the five banks reported a full-year profit of $3 billion, and a return on equity of 15.6%.

In a challenging operating period, they reported impairment losses of $414 million, an increase of 64% over the previous year. But ANZ, National Australia Bank, Commonwealth Bank and Westpac collectively reported $6.5 billion in impairment losses - a rise of 192% over the previous period.

Regional banks also increased deposits by 16.9%, a slight improvement on the banking sector as a whole, which increased deposits by 16.4%.

However, Mr McGrath said the regional banks were facing greater challenges. Further mergers and acquisitions were possible, and higher funding costs had reduced margins by a further tenth of a percentage point. "I would argue that's really starting to hurt now," he said. "Their margins are quite a bit lower than the majors."

Yesterday Suncorp shares rose 58 to $6.90, Bendigo and Adelaide Bank was down 30 to $10.62 and Bank of Queensland added 34 to $10.50. St George last traded at $21.79 on Monday, before it was suspended ahead of its merger with Westpac.

Meanwhile, Southern Cross Equities head of institutional dealing Charlie Aitken said some major banks, particularly ANZ and Westpac, were hurting their own share prices, because of their dividend reinvestment plans. But Value Enhancement Management senior consultant and head of research David Perry said bank shares had been affected by recent institutional placements and capital raisings, which were done for strategic reasons.

CBA gained 83 to $30.93, Westpac was up 70 to $16.25, ANZ rose 78 to $13.82 and NAB was up 53 to $19.68.

© 2008 The Age

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