Bendigo Likely to Lower the Cost Base, but Not Enough to Generate Excess Returns on Capital

Bendigo and Adelaide Bank is Australia’s fifth-largest bank, but is roughly 10 times smaller than the four major banks. A higher cost/income ratio and funding costs make it difficult to generate attractive returns on shareholder capital in a competitive market. The acquisitions of Adelaide Bank, Rural Bank, and Delphi Bank (previously the Bank of Cyprus Australia) has helped scale and diversify the loan book, but revenue gains and synergy benefits to date have failed to generate excess returns on equity given the larger capital base.