TEXT-Fitch Affirms Bendigo and Adelaide Bank at 'A-'/Stable

Sun Dec 16, 2012 10:07pm EST

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(The following was released by the rating agency)

SYDNEY, December 17 (Fitch) Fitch Ratings has affirmed Australia-based Bendigo and Adelaide Bank Limited's (BEN) Long- and Short-Term Issuer Default (IDR) ratings at 'A-' and 'F2' respectively. The Outlook on the Long-Term IDR is Stable.

At the same time, the agency affirmed BEN's Viability Rating (VR) at 'a-' and Support Rating at '3'.

The ratings reflect BEN's stable domestic retail banking franchise, sound funding and liquidity position, conservative risk management framework and adequate capitalisation. The ratings also consider increasing pressure on BEN's operating profitability.

BEN's IDRs and VR may come under pressure from a weakening of funding and liquidity or significant deterioration in asset quality. Positive rating action is unlikely due to the bank's unresolved exposure to investors under Great Southern Limited's investment management scheme and earnings pressures stemming from competition for deposits and loans against a mildly weaker economic backdrop.

BEN has performed well despite funding pressures and a weakening operating environment. Fitch expects the bank to continue to perform solidly in the financial year ending 30 June 2013 in a low credit growth environment, benefiting from a loyal customer base. More efficient cost management and sound asset quality will be key to maintaining profit growth in FY13.

BEN's asset quality remains strong, benefiting from conservative risk controls and a well collateralised loan book. Concentration risk by single name and industry is manageable. Fitch expects the bank's impaired loans to rise from their low levels, reflecting a slowdown in non-mining sectors and given the bank's cyclically low arrears.

However, a high level of loans secured on residential property should provide buffer for potential losses and keep overall loan impairment manageable. BEN's solid funding is underpinned by an extensive regional franchise and community-focused business model. Around 80% of BEN's funding is sourced from customer deposits, making the bank less dependent on wholesale markets relative to peers.

Wholesale funds are well diversified by instrument and maturity, and include securitisations which are non-recourse and whose maturities are matched by that of underlying loans, limiting refinancing risk. In addition, the bank benefits from sound liquidity which sufficiently covered wholesale funds maturing within 12 months at FYE12. BEN's capitalisation has continued to improve, supported by healthy internal capital generation in addition to a AUD195.5m share issue in FY12.

The Support Rating and Support Rating Floor reflect the moderate potential of support, in case of need, from the government for the bank, given its modest market share in Australia. The Support Rating is sensitive to any change in assumptions around the propensity or ability of the Australian sovereign to provide timely support to the bank.

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