Home Interest rate What could rising interest rates mean for Bendigo Bank stock price?

What could rising interest rates mean for Bendigo Bank stock price?


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The Bendigo and Adelaide Bank Ltd (ASX:BEN) The stock price started the day in the green on Monday.

As of this writing, the bank’s shares are trading less than 1% higher at $8.61 apiece with no news.

In general industry news, the Vaneck Australian Banks ETF (ASX: MVB) – an exchange-traded fund (ETF) that tracks the banking basket – is up about 1% on the day.

Rate hike and Bendigo Bank share price

ASX-listed banks started the calendar year strong as a basket in 2022 before turning sharply and underperforming since May.

Bendigo shares lagged somewhat before capitulating from highs of $10.68 on June 3 to hit lows of $8.68 seventeen days later.

It then recovered the entire downleg of this move and hit 52-week highs on August 12 before rushing to 52-week lows less than a month later, as shown below.

TradingView Chart

The rapid succession of highs-lows-highs and then back again could be mistaken for the failed results of a polygraph test, but rest assured there is plenty of truth to the pressures Bendigo faces.

The main investment debate for Bendigo and its banking counterparts in the future is the discussion around the Reserve Bank (RBA), interest rates and inflation.

Ultimately, the three are linked, but what should impact Bendigo the most – positively or negatively – are the key interest rates set by the RBA.

Theoretically, an increase in the level of commercial interest rates is positive for banks, seeing an increase in bank net interest margins (NIM), resulting in higher cash income.

However, as reported last week, banking stocks underperformed despite this perceived sector-specific tailwind.

Moreover, the Australian residential mortgage market is extremely crowded with very many players involved – both bank and non-bank.

This results in a more competitive pricing environment as interest rates rise, making it difficult for those with weaker loan and/or deposit portfolios to outperform.

When it will return to a more favorable price environment – no one knows, especially since the short to medium term outlook for the real economy is equally unknown.

Nonetheless, Macquarie analysts are constructive on the sector and believe the new interest rate regime could bring a “sugar hit” to the industry.

It is surely for the short term, they say. The result could be less rosy, however, especially if “credit growth is going to be slow for a long time”. It would have a “substantial impact on the earnings outlook and valuation of banks”.

Meanwhile, Bendigo Bank’s share price is down more than 5% year to date, after slipping almost 11% into the red in the past 12 months.