Wednesday, January 27th, 2010
Last week, Commonwealth Bank of Australia (ASX:CBA) provided profit guidance to the market. CBA expect first half net profit after tax to be circa. $2.9 billion and this is approximately $200 million ahead of market expectations. This result benefited from improving equity markets which provided strong investment returns. However, CBA also noted in the press release that there was a decline in impairment expenses relative to the prior corresponding period. The better than expected Australian employment statistics reported last week has meant that the Banks have started this calendar year without the threat of a rise in consumer bad debts.
Whilst most of the investment flows have focused on the big four banks and pushed their share prices higher, the regionals have lagged behind. This is with good reason; the big four have used that balance sheet and access to capital over the last few years to improve their market position. Meanwhile , the regionals have struggled with poorer quality loan books, impairments and higher cost ratios. As a result their Return on Equity and capital positions has weakened over the last 18 months.
One exception to this is Wide Bay Australia Limited (ASX:WBB). The Return on Equity for WBB fell to 17.2% in FY09, but this was well above the other peer group regionals and was actually better than two of the big four (NAB and ANZ).
WBB is one of Australia’s largest building societies. Established in Bundaberg in 1966, it is the product of five mergers. WBB offers a variety of products and services. These include banking, financial planning, margin loans and insurance products to individuals and business. Services are mainly related to residential housing loans in Queensland where the majority of the customers are located (74% of customers). New South Wales and Victoria represent the balance. Residential lending and retail deposits therefore make up the vast majority of the business which has 42 branches, 17 agencies and 230 staff. WBB endeavours to make their differentiation point superior customer service. This is in order to uphold their strong brand name and customer loyalty.