Here’s why Bendigo Bank (ASX:BEN) shares are up 8%

Companies and indices mentioned:

Bendigo Bank (ASX: BEN) shares are currently up 8% in another very strong day for the banking sector.

What’s going on?

This week is one of the best weeks ever for the banks. Bendigo Bank’s share price has gone up around 22% since the start of the week. Who thought that slow growth banks could generate such quick returns?

Bank investors seem to be very excited by the fact the Australian economy may do better than expected.

Not only is Bendigo Bank up 8% but the other banks are rising fast as well. The NAB (ASX: NAB) share price is up another 6%, the ANZ (ASX: ANZ) share price is up another 6%, the CBA (ASX: CBA) share price is up another 4% and the Westpac (ASX: WBC) share price is up another 5%.

Bendigo’s announcement

The regional bank announced its quarterly update today for 31 March 2020. It also increased its provisioning for the potential future impacts of the COVID-19 pandemic.

Bendigo Bank has provisioned an extra $148.3 million for the potential COVID-19 impacts. It will decrease the bank’s common equity tier 1 (CET1) capital ratio by 40 basis points, meaning a calculated CET1 of 9.3% at 31 March 2020. This is above APRA’s unquestionably strong benchmark target for a bank of Bendigo’s stature.

Just like most other organisations, Bendigo is expecting lower GDP, higher unemployment and a reduction of residential and commercial property prices. The bank has not assumed a sharp recovery in its outlook, but rather a slower recovery.

Bendigo Bank Managing Director Marnie Baker said: “We have provided more than 20,000 personal and business accounts with dedicated support to give them the best possible opportunity to weather the COVID-19 impacts. We are continuing to provide credit to our customers, both new and existing.

We are very well placed, driven by our longstanding and prudent risk appetite settings, increased credit provisioning and a stronger balance sheet and capital base, above APRA’s unquestionably strong benchmark target for standardised banks and further bolstered by our recent capital raise.”

However, in the banking space I think I prefer CBA for its safer balance sheet.

Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned. 

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