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Why Bendigo Bank today withdrew its 2H20 guidance

Bendigo Bank shares have fallen further than the ASX 200 index today, after management pulled the bank's 2H guidance due to the coronavirus, potentially implying more trouble ahead for Australian banks.

(ASX: BEN) Source: Bloomberg

Bendigo and Adelaide Bank share price: H2 outlook update in focus

Bendigo and Adelaide Bank (BEN) shares have fallen 4.7% today, after the lender withdrew its second-half guidance as a result of ongoing uncertainty from the coronavirus.

In a statement to the ASX on Thursday, the bank said it would be ‘prudent’ to withdraw its guidance for the six months ended 30 June because it was too difficult to make accurate financial predictions in the current, highly uncertain environment.

The guidance, issued as part of the bank’s interim results on 17 February, forecast a ‘steady recovery’ in the Australian housing market and only a slight increase in bad and doubtful debts.

Steady or not, shares in the regional lender finished the session down 29 cents at $5.90 per share, against a broader slide in the benchmark ASX 200 index of 0.9% to 5,416.3 points.

Within that, investors were possibly digesting what the Bendigo announcement could mean for the broader banking sector. For example, Australian mortgage holders impacted by the coronavirus have been granted a six-month repayment holiday as a million people are forced from their jobs.

The bank nonetheless stressed:

'We are open for business and as an essential service, it is vital we provide our customers with the dedicated and necessary support they need. We have been actively engaging our customers to support them during this challenging period.'

Highlighting those potential concerns, all of the big four banks were down more than the ASX 200 benchmark today. These losses were led by Westpac Banking Corporation which saw its share price declines 2.3%, followed by the National Australia Bank which fell 2.2%, ANZ Banking Group dropped 1.6% and Commonwealth Bank of Australia, which ended out the session 1.3% lower.

Fellow regional lender Bank of Queensland, which also recently withdrew its guidance, finished out the session down 3.4%.

Other bits and pieces

Taking a step back, Bendigo has been the worst share price performer of the major and regional banks in Australia since it’s H1 interim profit announcement.

Bendigo shares have lost 42.2% since February 17. At the time Bendigo management expected steady employment growth and an Australian cash rate below 1%.

Since then, the Reserve Bank of Australia has cut interest rates twice more to a record low of 0.25% and conducted a quantitative easing bond-purchasing program to bring down long-term interest rates and boost the domestic economy.

As interest rates approach zero, smaller lenders come under more margin pressure than their larger rivals. There has been talk that Australia’s scattered mutual lending sector at the bottom of the market is ripe for consolidation. Adding to that, there have even been suggestions that Bendigo should merge with Bank of Queensland to reduce back office costs.

In February for example, the Australian Financial Review ran an article titled: Why a Bendigo-BOQ merger makes sense; Brambles' inflation problem.

Finally and as a positive, Bendigo also said in its H1 guidance that it expected stronger than industry mortgage growth, ongoing growth for its small business portfolio and its commercial real estate unit. It added bad and doubtful debts would not rise too much, despite the impact of Australia’s devastating bushfires over the summer.

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