Bendigo and Adelaide Bank Limited (BEN) Earnings Call Transcript & Summary

So welcome to Investor Day. My name is Sam Miller. I'm Head of ESG and IR actually as well. Before I start, I'd like to acknowledge the traditional owners of the land in which we meet today. Here in Sydney, it's the Gadigal people of the Eora Nation. I pay my respects to their past and present and extend my respects to the Aboriginal and Torres Strait Islander people who are here with us today. Thanks so much for joining us. Face to face is always such a great interaction. And as a relationship-driven bank, we're really looking forward to spending some quality time with you. For those on the video will be available on Friday. So today, we've got a pretty good agenda. We're starting off with our CEO, Marnie Baker, who will talk through our transformation program and our points of difference; then we'll head to Ryan Brosnahan, our Chief Transformation Officer, who will walk through our digitization and technology platforms. And then we'll break into 3 specific sessions. First, we'll have Adam Rowse, our Chief Customer Officer of Business in Agri, who'll walk through the B&A program. We'll showcase our Bendigo lending platform with Richard Fennell, our Chief Customer Officer of Consumer; and then we'll provide a deep dive on our Up business with Xavier Shay, CEO of UP and Ryan Brosnahan. The final part of the day, you'll hear from our CFO, Andrew Morgan, and then there'll be a long opportunity for Q&A with Marnie wrapping up. The purpose of the day is also to allow some interaction with our other executives that we have here today as well. [Operator Instructions] I hand over to Marnie.

Thank you, Sam, and good afternoon, everyone, and thank you so much for joining us. It's great to see you all here. As you know, we are a relationship bank and I relish the opportunity to meet with our stakeholders in person. And thank you for taking the time, like I said, out of your busy schedules to join us here today. As Sam outlined today, we will provide you with an update on our progress and our plans. We will explain how the strong foundations we have built and the capability we have developed will allow us to leverage our points of difference and continue to deliver sustainable growth for our shareholders. It has always been very clear to us that our relationships with our customers are the key to delivering on our objectives. And today, we're seeking to help you to join the dots. I encourage everyone and particularly the analysts in the room. Just to set aside your models for a few hours and just immerse yourself in the more detailed deep dives, into our strategy and growth engine drivers. You can get back to your models later. You're going to -- and the reason I say that is because you're going to have access to our senior leaders, who are going to be sharing their insights and plans for our business, for our business and Agri division, our new Bendigo lending platform and our market-leading digital-only bank Up. So please take the opportunity to really get involved. Today, we have all of our executive team here. We have a couple that you know already, Andrew Morgan, our Chief Financial Officer; and also our Chief Risk Officer, Taso Corolis. Probably a couple that are familiar to most in the room, Richard Fennell, who is our Chief Customer Officer, Consumer; and Ryan Brosnahan, our Chief Transformation Officer. But I'd like to introduce you all to those who probably haven't met to this date. And that is our Louis Tebbutt, our Chief People Officer; Bruce Speirs, our Chief Operating Officer; and Adam Rowse, our Chief Customer Officer of Business and Agri. If you leave today and take away only one thing I want you to remember this. Bendigo Bank is the only credible challenger to the major banks. There is no one else that has the strength, capability and differentiation that Bendigo has. Our balance sheet has never been stronger. Our capital levels are well in excess of the margins on a standardized basis. Our funding levels as a measure of our household deposits are market leading. And we continue to deliver some of the lowest credit losses in the industry through the cycle. For the last 5 years, we've been laying the foundations for the next phase of our development. We've simplified our bank, our brands, systems and processes. We've developed and sourced the expertise and capability required, and we've built the infrastructure. We've uplifted our risk management capability. We've got the right leadership team in place to deliver on this strategy and guide our motivated and engaged workforce, who are united by our purpose and believe in our vision. In an increasingly homogenous industry, we stand out as being different with unique qualities that resonate deeply with our customers. Our role is Australia's most trusted bank, our regional routes and values and our reputation as a community-focused bank that customers feel a deep connection with. We are now in a position to bring it all together, our strength, our capability and our differentiation in a way that supports our objectives for sustainable growth. And we didn't get here by accident. We got here through careful planning, disciplined execution, and by adhering to and delivering on our strategy to be our vision to be Australia's bank of choice. Our purpose of feeding into prosperity, not offer and our commitment to delivering on our strategic imperatives of reducing complexity, investing in capability and telling our story. We could see banking was becoming commoditized. We focused on community. We saw products and services going digital. We built Australia's best digital bank. We see banks once again exiting branches as the economics and relevance of the traditional style of branches is being challenged. We've developed a locally owned and operated branch model that brings more than just banking services to communities. We're proud to be different. We've always marched to the beat of our own drum. We've been doing that to 165 years. And it's just 1 of the many reasons why customers want to bank with us. That's why our customer numbers are growing at around 10% a year. And our NPS is market leading. That's why we're Australia's most trusted bank. There is no doubt that there is an abundance of demand for our products and the investments we are making are focused on making it easier for customers to do business with us wherever, whenever and however they choose. We've got the foundations right. We have been patient in our approach, strategic in our decisions, sequencing our investments carefully. And the time is now right for us to begin the next phase and to optimize the assets that we have developed, our strength in balance sheet, our capability and our differentiation. We've created Australia's first and best digital-only bank with Up, which has grown to almost 1 million customers in just a few years. And is the highest-rated banking app on the App Store and Google Play. Customer numbers continue to grow above 25% each year, and deposits are growing even more strongly. We will now use what we have learned from with up to onboard new Bendigo Bank customers even faster and at an even lower cost to the bank. Our new Bendigo lending platform will deliver a one-way same way process for residential lending across the bank, while deepening our relationships with our broker source customers. The platform is in market today and is delivering equal to industry-best turnaround times. Our investments in business in agri will ensure our customers have a modern and consistent experience. Our new origination platform will be operational before the end of this calendar year. The offering will be competitive and we are focused on delivering sustainable growth by targeting those market segments where we have a natural advantage. By June 2025, -- the bank will have 1 core banking system, 2 brands and a unique opportunity. Against this backdrop, -- we will today provide you with a deeper look into 3 of our growth engines. Adam Rowse, is going to share the strategy for business and Agri division, our key target segments, and showcase the foundation of our new platform due later this year. Richard Fennell will highlight how our new Bendigo lending platform will facilitate the deepening of relationships with our broker originated customers and uplift the experience and efficiency for both brokers and our direct and third-party customers. Finally, Up CEO, Xavier Shay and Ryan Brosnahan will walk you through the evolution of Up. How Up approaches the design of products and functionality and how the relevant capabilities can be transferred to Bendigo. I'll now -- Ryan, I'll now hand over to Ryan to provide an update on our technology program at Bendigo before we go into the deep dives that I've just mentioned. So thanks. Ryan?

Thanks, Marnie. And for those of you I haven't met, I'm Ryan Brosnahan, the Chief Transformation Officer of Bendigo and welcome everyone here today, and thanks for coming along. Today, I'd like to walk you through the progress we've made to reduce the complexity in our business, while modernizing and digitizing key processes and technology to become a more adaptable and responsive bank that enables our customers to interact with us how and when they want. In 2020, we were running 8 different core banking systems. Every time we had to make a product change or a compliance change, a policy update, we had to make it multiple times over. Our teams were focusing almost solely on keeping systems running and implementing regulatory changes. We now have strong momentum and have progressed significantly in reducing this complexity. We've transitioned Delphi and Alliance Bank customers on to Bendigo's core platform. The Alliance integration alone allowed us to retire 4 core banking systems, more than 200 products and 30 technology applications. We are now down to 3 core banking systems and are working on our final 2 migrations, Rural Bank and Adelaide Bank. We had previously flagged this work would be completed this calendar year. However, as noted in previous results, priorities in cybersecurity and strengthening fraud controls were delivered, which means we will complete the Rural Bank migration this year, and have already started the run down of the Adelaide Bank book and we'll be writing all new business with brokers on Bendigo products and systems by the end of QQ1, '25. And we'll complete the full migration of Adelaide Bank by the end of next year. We have a script, a team and valuable skills and insights for how we deliver these complex projects, ensuring we take an efficient and strategic approach. For our Rural and Adelaide Bank customers, migrating to Bendigo Bank will mean gaining access to Australia's most trusted bank, which includes a greater range of products and services. enabling us to deepen our relationships with these customers. Completing this core banking system simplification work will enable us to have a laser focus on our 2 distinct market offerings. Bendigo Bank and our digital bank app, which is already built on Bendigo's core banking system, allowing us to focus our technology investment into supporting these 2 key businesses. At the same time as reducing our complexity, we've been modernizing our technology environment to become a more agile and efficient bank. We've halved the number of IT applications we use across the bank since 2020, consolidating systems and delivering enterprise-wide solutions that support 1 way, same way processes. Delivering common business capabilities across critical business functions, including collateral management, document management and product and pricing. We have modernized our contact center technology with Amazon Connect, moving from 5 different applications to run enterprise-wide cloud-based solution. With all of that contact centers this now powered by this technology with improved analytics, AI and automation capabilities. Our cloud migration approach sees us closing in on our 50% target of cloud-based technology applications by the end of this financial year. This improves our resilience, our security posture and our ability to introduce changes much more quickly than where we started 5 years ago. Our application programming interface or API strategy is another competitive advantage for us. We've built solid foundations and our high rate of API reuse means we are being efficient leveraging common APIs to support multiple experiences seamlessly connecting our systems to talk to each other, automating processes and driving faster decisions. Bendigo's new lending platform has been composed with more than 180 reusable APIs, helping to automate our processes and speed up our time to decision, which you'll see a demonstration of in the breakout session. We've designed our infrastructure to enable the strategic choice to build or partner, allowing greater flexibility for our customers and a more cost-effective approach for our shareholders. A good example of this is Tiimely, and our solutions for business and agri, which again, you'll hear more about in the breakout sessions. In recent months, we've also been involved in a successful world-first trial using a generative AI-assisted model to modernize legacy technology applications, working with our partners, MongoDB. The trial delivered very promising results, and we estimate it reduced the human effort to modernize that legacy application by up to 90%. Another key component of our modernization program has been the establishment of our cloud-based data platform, which went live earlier this year. We know that to better understand and quickly respond to changing business and customer needs, readily available data powered by advanced analytics and AI is essential. Our recently deployed data platform powered by Google Cloud will unify all our data into 1 place over the next 3 years, beating applications, processes and self-service reporting with enhanced controls to improve data or tegrity. So what does all this mean? That means, we've radically reduced the complexity in our technology environment and modernized our approach, allowing us to focus on delivering great experiences for our customers in a much more adaptive and responsive way. One of the big challenges we've had to face into as a business is how we balance our investment across the essential foundational work I've just spoken about with the need to continually improve the customer experience and develop new digital capabilities. Our focus has been on digitizing processes across our key customer journeys, saving, home lending, everyday banking and business lending. We will shortly take you through deeper dives on what this looks like and how digitizing our customer journeys will help us to drive sustainable growth through our consumer business in agri and Up businesses. I note Marnie and Andrew have previously spoken about digital mortgages across our multiple brands and channels. This slide helps bring our approach to life. As mentioned earlier, we are in the process of retiring the Adelaide Bank brand with no new business to be written on the Adelaide Bank origination and servicing platform from the end of June this year. Our digital direct offerings such as Ben Express and third-party and White Label partnerships such as Qantas, which have allowed us to steam ahead with digital mortgages will continue to be supported by the Tiimely platform. We have also been testing how we bring together the best of Bendigo and up to accelerate our capability and improve the customer experience across all of our digital channels. A good example of how we have brought this to life is through the launch of our Up home offering, which we were able to bring to market extremely quickly going from idea to delivery in 6 months. We were then able to use the learnings and capabilities we have developed for Up Home to uplift our BEN Express Digital Home Loan offering quickly. Both of these offerings are tracking well ahead of our targets for FY '24. The time is right to now accelerate deploying broader digital capabilities and customer experiences for our Bendigo channels. through leveraging the market-leading capabilities we have built with app. Up CEO, Xavier Shay will shortly take us through these capabilities in more detail for us. But what is really exciting is the potential of using these capabilities and features to drive a faster uplift in our Bendigo digital offerings. One of our first priorities is to use the digital sign-up capability we have built for up to accelerate the delivery of a join the bank experience within the Bendigo Bank app, allowing new customers to sign up in minutes. When we look at the impact of new digital features we have recently introduced, we can see a really strong growth trajectory in this channel. Digital account growth for our savings accounts make up almost 50% of all accounts opened in the last month. Our term deposit digital sales have also seen strong growth. And last month, accounted for more than 20% of all term deposit sales. Andrew will talk to this further in our pathway to achieve our ROE targets. We have proven that when designed well, with intuitive flows and helpful prompts, we generate excellent uptake of digital features with minimal need for additional marketing investment. Our aim is to create a new digital channel of choice for Bendigo customers. Our physical channels remain essential, but we must close the gap in digital servicing to support continued deposit and lending growth. The Bendigo brand is a relationship brand. Our task through the work we are doing is to translate this digitally and support our business to deepen customer relationships with the advantage of a 400 branch network across Australia. I'll now hand back to Sam, who will help introduce the breakout sessions.

Well, first of all, thanks again very much for joining us here face-to-face, and I hope you've enjoyed the sessions that you've heard to date. Today, what I want to do is to reiterate our pathway towards our target return on equity. And I've got to draw on much of the information you've heard on throughout those breakout sessions that you've just been to. So picking up on where Marnie finished, we have strong foundations to support our growth aspirations. . Our common equity Tier 1 capital at 11.12% is approximately 90 basis points above the midpoint of our board target range and well above the major banks on a standardized basis. In the last few years, we've improved our organic capital generation, and we're now deploying a proportion of that capital into investments, which will be return on equity accretive. Our liquidity position is strong. We typically run our LCR between 130% and 140% and our March quarter average of LCR of 149% equates to a $4.5 billion surplus of liquidity above regulatory minimums. Our funding profile is 1 of the strongest end market. The ratio of household deposits to loans is 73%, which is well above the major and regional banks and customer deposits as a percentage of total funding is 75%. This reflects the strength of our deposit gathering franchise. And our credit provisioning coverage is strong. Now credit provisioning to total credit risk-weighted assets is higher than the major banks on a standardized basis. So we have a very strong balance sheet, underpinned by a strong deposit gathering franchise. We have a strong track record in managing costs. Our total costs over the 5 years to 2023, grew at just 2.7% per annum compared to inflation of 3.9% per annum over that same time period. When you exclude investment spend expensed. Over the full year to 2023, our costs grew at just 0.5%. And we show on this page several examples of how we've simplified our business and contain cost growth through productivity savings, business simplification and other cost-out initiatives. For example, we've migrated 8 core banking systems to 3 and reduced IT applications by 50%. We've combined 2 business divisions, business and Agri into 1 and created efficiencies, and we've exited nonstrategic partnerships. Over this same time period, we've been investing to steadily build foundational technology as well as complying with regulatory requirements. You can see on this page that our investment spend over the past 4 years has been increasing. If you simply annualize our 1 half '24 spend, it's 20% higher than the average of the 3 years to financial year '23. And as we've said previously, we do not expect to see our investment spend reducing anytime soon. What has changed through this year is the nature of that spend. In the last year, we've pivoted towards more growth-oriented investment, including things that you've heard about today, building the Bendigo lending platform and the rebuilding of our business and Agri division. Tying back to what you heard earlier in the breakout sessions. And starting with Up, AP does not materially impact investment spend per se. It's about investment in people and marketing spend. The rebuild of our business and Agri division is in flight. We noted in the 1 half result that we had booked some restructuring costs, and this is expected to continue into the next year as we complete this program. And the Bendigo lending platform is also in flight. We finished most of the build for our broker partners and we'll move to complete the balance of the program into the next year. In respect of the key benefits we expect to realize through our investments, starting with Up, we do expect strong lending growth at a multiple of system funded by the ongoing strength of its customer acquisition engine and deposit gathering capabilities. On Business and Agri, we expect to grow above system in business lending over the medium term. and the introduction of our new Bendigo lending platform for brokers, we'll bring both revenue and cost benefits. We expect to deepen our relationships with broker introduced customers, who today have 1.7 products with us. We believe we can lift this to 2 to 3 over time. And with a largely automated assessment process, we expect to see meaningful reductions in the cost of manufacturing mortgages in the next few years. This will provide us with significant scale benefits. Now today is not about financial specifics. What we will do at our full year results briefing is provide further information on spend incurred through this year and any changes to future investment spend. And finally, we've previously talked about the 4 building blocks to generating a return on equity above our cost of capital. Deploying capital in the most profitable channels is a discipline we have embedded in our business. As Marnie highlighted earlier, we are deploying that capital into our growth engines and building sustainable returns at the same time. So to recap our 4 building blocks to our target return on equity are, first of all, a continued focus on cost management. As you saw earlier, in the last 4 years, we've contained our business-as-usual cost growth to just 0.5% per annum. Second, we'll continue to invest in our deposit gathering franchise, and expand our digital deposit gathering in both Consumer and Business in Agri. Third, we will diversify our balance sheet with the rebuilding of our business and Agri division. And fourth, we'll continue our disciplined approach to deploying capital into those home lending channels where returns are most attractive and where growth opportunities exist. This means deploying capital into digital mortgages via our proprietary brands, Up and BEN Express and through our partnerships with Tiimely, Qantas and NRMA. It also means utilizing our new Bendigo lending platform, where we've started to grow again in this large and important channel of broker introduced lending. And we look forward very much to updating you with further financial detail in August. I'll now hand back to Sam to facilitate the Q&A.

Thanks, Andrew. I'd like to call Marnie, Ryan, Taso and Adam to the stage, if we can. We also have Louis, Bruce, Xavier, and Taso here if you have further questions. So happy to open the floor up.

It's Brett Le Mesurier from Perpetual. I was actually interested in detail from the trading update that you gave, which was the net interest margin went up materially from the first half to the first 4 months of this current half. And I was wondering for the reasons for the large increase, which looked like it was best part of 10 basis points.

So what we announced, Brett, was a year-to-date margin. And actually, if we go back to what we said in the first half, what we said has actually come to pass. And so what we said was we expected to continue to see benefits from our replicating portfolio, that's happened. We said we'd continue to see our fixed rate loans mature, high retention rate and mostly those customers choosing a variable rate mortgage. There's a tailwind in respective margin. That's played out. One of the things that I know you're all interested as well is the switching behavior out of transaction accounts. And we've talked previously where we've said that is slowing down, and we're also starting to see more customers choose a savings account instead of a term deposit that has also played out. We also said that our exit margin was higher than the second quarter average. So everything that we said played out.

And is the margin still increasing?

As we said, everything that we said at the first half has played out.

So it still applies all those characteristics are still applied?

Yes, they do.

Sally, like to turn over to Sally there, Lisa. Just over you Jon with the camera.

Sally Hong from Morgan Stanley. So with the strong deposit growth in the digital space, how do you expect digital deposits to change our overall deposit mix over time and the average cost of funding?

So we are seeing really good growth in digital deposits, and we've talked about a couple of examples in particular, with Up, which you've heard about today through Xavier. But you've also no doubt heard about the EasySaver product, which we've now put in app and that is proving to be a great success. So we're seeing now 60% of our new accounts being opened, coming through that app. Look, we have a very strong deposit gathering franchise, as you know. It's one of the reasons why we feel confident about our long-term perspectives on return on equity and reducing our cost-to-income ratio towards 50%. And so we have very positive hopes for how that digital channel will continue to emerge. Now all of that said, the power of our proprietary network and our community backed network is a phenomenal engine in respect of gathering deposits. That still represents over 2/3 of our deposit base today, and that is not something that we should take lightly.

We'll go to Victor, please, Lisa.

Victor German from Macquarie. I appreciate Marnie, told us to stay away from financial models. But just to gently coming back, you've obviously done a lot of hard work, and you've showed us a lot of investment has gone into the platform. We haven't really seen, if we're looking at the P&L, any cost benefits come through. And you're telling us that investment pipeline is still staying at these levels or going up. Maybe can you just talk a little bit more about what is it that you're doing going forward where the investment dollars are being spent? And why are we not seeing some of the cost benefits coming through at least through the operational expenses line?

Well, Victor, I would argue that keeping our cost growth below inflation over a protracted period is productivity. So there's a -- but over the things go in cycles. There'll be some years where it might be a little bit harder. There'll be other years where there's not. We've talked for best part of 18 months, 2 years now about the work that we're doing around productivity, and we brought the capability into the organization, so Lean and Six Sigma capability. And so what we've been doing is not just one thing. We've been doing multiple things across our business to, for example, reduce supply numbers. For example, to renegotiate contracts. For example, to look for productivity savings in our operations team using this productivity discipline. But also with the investments that we're making at the moment, we believe, particularly with the new lending platform that we've talked about, that will see material reduction in our cost to manufacture mortgages over time. Now what that translates to in respect of cost is really a function of the volume that we put through that platform and the nature of the complexity of the loans. But we have a lot of confidence in the investments that we're making, that they're not just about revenue, they're also about cost as well.

And productivity will usually lag the investment, too. So we do have to look at it over a longer period of time because not everything will have payback in that same year that the investments made.

You might move to Jon, just to you, Lisa.

John Mott from Barrenjoey. Over the last many years, we've always heard a new technologies coming along, we're going to roll out ATMs. We've got to roll out go through Internet banking. We're going to roll out telephone banking. We're going to roll out apps, now are rolling out digital. And every time we hear, this is going to be a great efficiency gain. This is going to really put up cost down and our revenue is going to expand, and our ROE is going to expand never as it occurred. Because all that happens is that all the competitors in the market do the same thing and the customer becomes the winner and the benefit of the technology goes to the customer and not the shareholder. Why it won't be different this time?

I think that's probably a conversation we could have over dinner one night, Jon, because I think you're right in a lot of respects. Now I sit here on behalf of the customer and the shareholder. And I think as customers ourselves, we're hoping that we do get some of that benefit to ourselves. But you're right around from a shareholder perspective. Look, technology and maybe Ryan might sort of want to add to this, too, because he's been in the technology field for a long period of time. But you do see technology come and go. I think we talked a little bit today around AI, and I'll probably say more specifically generative AI, that's going to be as big as the Internet, was. And we've only just sort of just touched the top of that at the moment. And look, it's got a dark side as well as a light side to it. And I think that's what all organizations are sort of thinking through at the moment about how you use it for good and keep away from those that are sort of trying to use it for bad. I think we're getting better at it. And I think the fact that we're able to regenerate technology now and a lot quicker than we used to, means that you can actually get the benefit and get that benefit quickly before it actually does move on to the next, and it's not as costly to actually lift to that next piece of technology or whatever that is that comes through. But Ryan, do you...

Yes, I think it is a great observation, Jon. But I think the democratization of technology that's happening at the moment is actually really advantageous for an organization our size. And we've always been challenged because the cost of entry to a lot of those technologies you mentioned is actually quite high. Whereas with cloud now with APIs with AI, that cost of entry reduces and enables organizations our size, to actually, one, be able to get -- develop experiences that are similar to those with 10x the investment budget, but also -- and this is really critical, where we've been able to prove with a lot of the things we've been doing with Up. We're able to move much quicker and speed equals value when it comes to technology. So if we can operate in a way that enables us to get relevant experiences to market much quicker. That represents value. The other key points on that is that as AI, I agree with Marnie, we're obviously at the very start point of AI, but I think that creates some really interesting opportunities as well.

We might go to Andrew in the back center.

Just a question on your CTI target of falling towards 50%. If I look at consensus, it looks like we're expecting sort of 2% to 3% growth, so call it around at inflation over the next couple of years. Your cost-to-income ratio for consensus stays about flat in sort of the high-50s, so it doesn't really move lower, suggesting that you have a more positive view on the revenue environment than maybe we do. I guess my question is, can you just when you sort of have that view base, are you basing that view, I guess, more on cyclical factors, which you can't really control, i.e., just how pricing environment might change, margin environment, et cetera? Or is it more around some structural factors around what you're actually doing related to the mix of the business and the like.

This is about what we can control, Andrew. Of course, we are not price makers in market, we're price takers. But we know today that, and you all know this as well, we haven't really grown in broker introduced lending for some time now. And as we've said repeatedly over the last few years, the economics haven't made sense. And I think we'd all concur that the economics in certain channels is now improving, and you can see that through the reserve bank stats. And as you've heard from the platform discussion today, we've got great opportunity there. We've got a lot of appetite from the broker community. Ours has never been a demand issue, if you like, it's been a supply issue, where in certain cases, where the economics don't make sense, we've not been willing to put our capital to work. Where we have been putting our capital to work is in digital mortgages of late, but now we're starting to see that economics across a number of channels are starting to improve. But all of this is possible, of course, because of the strength of our deposit gathering engine that we have, which is underpinned again by the physical network that's stay. So the power of both our proprietary network in our community banks and now increasingly through digital deposits. And so as we think about that cost-to-income ratio, it's about both sites, and we know that it's about -- it's both a revenue story and a cost story. It's not one, it's not the other. It's both. -- and the technologies that we've talked about through today actually deliver us both.

I think I might go to Ed, please.

Just following up from your answer on that question, just two things. Firstly, you talked about capital investment in the ROE walk, you don't talk about that, March. Can you talk about you're going to use the excess capital just to invest in both technology and for growth? Or is it potential to return some, if you continue to grow, you should generate capital as well as the first part of the question. And the second one, you talked about economics in the last answer to Andrew's question. Can you just talk about the difference in the economics between the broker channel, which you've now got a new system for and the community branch channel. Is there any difference in the margin that you get. So you -- it doesn't matter what channel you go through? Or is the broker channel going to hurt your margin if you grow that faster?

There's a lot in that question, which one do you want me to go to first? So we've said through today that we're deploying a proportion of that, if you call it excess capital that's there now. No decisions to talk about at this point about, if there's excess capital left over after we deploy, but at the moment on the basis that we can generate good return on equity returns through deploying that capital sensibly, we'll do that. On the second one in respective economics, and this is not new news, we previously talked about this today, and we've done a lot of work to understand the economics of all of our channels, in particular, understanding the cost to produce a mortgage through our various channels. We've been consistent in saying that our digital mortgages are our strongest returning channel, and that's why we've been putting our capital to work. As we've seen the economics improve somewhat in broker-introduced lending, that's a channel that's starting to become more attractive, and it's pretty close to the sort of returns that we are interested in. Our proprietary network is there or thereabouts with -- it's somewhere between those 2 and community returns because of the way that the revenue sharing works is the last return.

[indiscernible].

Yes.

So we might get it Andrew Triggs.

Just on the business bank, obviously, that's probably of the 3 streams today, where you're further this is behind and less well advanced on plans to address it. Can you just talk to the investment required in that division in order to drive the sort of improvement in the offering and the growth potential?

Do you want to talk -- why don't you about -- instead of Andrew talking of -- go to the growth potential.

Yes. Look, as I outlined in the session, I think there's huge growth potential coming through multiple different streams. So whether it's from our branches or direct from our relationship bankers through the broker channel. And then as we build out the digital capability, that's a huge opportunity for us. I also mentioned in the session, I'm not sure if it was the one you're in that look, we have great support from the Board from a continued investment perspective in terms of this channel. In terms of what that is specifically, I might prefer to Andrew, if he wants to talk about that as we work through what next year looks like, but it's been a significant investment in this year. And it looks like it will continue to be a significant investment over the next 2 years to help us fulfill that need. As we said in the session, this isn't a once and done. We have a big plan to be able to build out capabilities. By the end of it, we want to be able to meet every single customer's need digitally, but also through our relationship and banking and our branch network. So big opportunity for us and we will require continued investment over time.

The large part of the investment, though, Andrew, is through this year and next year. And through the first half results, we talked about some of that. There will be an amount in the second half and then we'll talk further about what next year might or might not look like at August results. So that's over those couple of years.

I think we might move down here to Jeff.

Jeff from Jarden. Can you give us a sense of when you expect to achieve those target ROE? And is it still greater than 10%?

We've said pretty consistently, Jeff at the medium term.

Which is?

The medium term. And then just -- well it's been a bumpy last year or so with the mortgage was as we all know.

So on the cost side, I mean we've heard lots about process improvements and lower manufacturing costs. So in your mind, are you expecting a big step down in your absolute costs in FY '27?

The way that we think about it is there's a combination of both revenue and cost. I think it's fair to say that there's a degree of growing into a cost base because we'll be more scaled from reducing cost to manufacture, but there's benefits on both side of that equation.

Brian Johnson, MST. Congratulations on really good presentations. And also congratulations on actually achieving something often. We've come along to these things. And it's all about [indiscernible] without actually seeing very much. So well done. That said, Andrew, we can't avoid the issue, which is Slide 31 from the first half result. We specifically said FY '26 return on equity in excess of cost of capital core -- cost-to-income ratio towards 50%. I'm sensing a little bit of reticence on the FY '26 number. But the subset of the question within that, when you say return on equity in excess of cost of capital, can you quantify what you think your cost of capital is? And is that -- could that be just predicated on a continuing very low loan loss charge. Your long-run loan loss charge is $10 million to $12 million. Are we talking about earning the cost of capital on a normal loan loss charge, the FY '26 number? And also, could we get a feeling on what happens to it as rates fall because we're in a bizarre environment at the moment where rates are high, which is great for a deposit business, but we're also getting positive mark-to-markets effectively coming through the replicated portfolio. If rates fall, that might go the other way? Is that a risk? So I apologize if that was long ramble, but you guys graded Slide 31, not...

Do you want take that?

Gosh, Brian, where do I start? So let me actually turn this around a little bit and say the return on equity target that we think about is based on everything that we know today. And what we know today is that we've got 1 of the lowest loan loss charges in market. We have a very conservative credit risk appetite and the experience that you see through our numbers would suggest that, that is absolutely true. When we think about return on equity, we think about those 4 growth engines. We think about managing our costs tightly as we've done over the last 5 years. And we've proven that we can manage our costs in a high-ish inflation environment, at least through the cycle below inflation. But we also know we're coming from a long way back in a couple of areas. We're coming from a long way back in business in Agri, where we've shrunk market share over the last few years and we see opportunity to grow our share back in that business and importantly, at attractive returns. We have a phenomenal deposit gathering business, and that is really the key to our business because that ability to gather costs and not necessarily higher cost deposits actually gives us the ability to make loans and then to ensure that as we're writing loans, we're meeting our return hurdles. And we're being really cautious about the way that we deploy capital. We've been saying this for a couple of years that we will look very carefully at all of our channels, and we'll make decisions about where we allocate capital, ensuring that we do cover the cost of capital that we calculate internally. We've taken into account rates as we've thought about...

The cost of capital.