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

Good morning, everyone. Thanks for joining us for Bendigo Bank's 2026 Full Year Results Briefing. Let me begin today by acknowledging the traditional owners of the lands in which we meet today, the Gadigal people of the Eora Nation, and I pay my respects to their elders, past, present and emerging. I also extend my respects to the Aboriginal and Torres Strait Islander people who are present on the call today. Following our recent results announcement on the 18th of August, we have slightly adjusted our approach to the results presentation today. Richard will start with a high-level overview of the key performance highlights. He'll run through the strategic deliverables and an update on the AML/CTF program. Andrew will then step through the audited financial performance and provide an overview of our credit position within the current macro environment. We'll then move on to Q&A. I'll now hand over to Richard.

Thanks, Sam, and good morning, everyone, and thanks for taking the time to join us today. We recognize our market release on the 18th of August provided a number of updates, including unaudited statutory profit and financial metrics. So today, I'd like to provide some more detail in relation to our strategic progress and risk programs. Our full year result demonstrates our ongoing disciplined approach to driving targeted business growth and delivery against our strategic agenda. Cash earnings have again improved this half, benefiting from continued growth in lower-cost deposits, supporting margin expansion. Our second half expenses were down, reflecting the benefits from Phase 1 of our productivity program and fewer days in the second half. We have regained lending momentum following a return to growth in our residential lending book in half 2. Our key differentiators, including our quality products and the Bendigo brand Net Promoter Score that is 21 points above the industry average continues to attract customers. We're on track to exceed 3 million customers with Up's customer numbers growing 11.5% over the year. Up's profitability continued to improve into the second half with deposit balances growing 45% over the year to more than $4 billion, while momentum in Up's home loans continues with growth of 56% over the year, now reaching $2.6 billion just over 3 years since launch. Our acquisition of RACQ Bank's loan and deposit book is progressing at pace with a significant amount of pre-migration work completed. And as outlined on the 18th, the uplift of our risk capabilities is our #1 priority. I'll provide more detail on this later in the presentation. I want to share some more detail with you now in relation to the financial performance for the 2026 financial year. Cash earnings for the year of $530 million were 3% higher than the prior year, driven by income growth of 5.1%, while expense growth was 4.2%. Income growth benefited from a 7 basis point increase in net interest margin, higher fee revenue and Homesafe realized income. The improvement in margin over the year was largely driven by our continued focus on delivering a more favorable mix of lower cost deposits and a measured approach to term deposit pricing. Operating expenses for the year increased by 4.2%, reflecting the expected increases in software amortization and technology costs and the ongoing investment in risk and digital capabilities. Our focus on productivity and cost management helped to offset a proportion of these costs. And second half costs were down 2.1%, benefiting from a lower average FTE number and -- as a result of our productivity programs and lower remediation expenses and fewer workdays. Credit costs increased for the full year, reflecting our cautious outlook from the updated macroeconomic forecast. That said, the overall credit portfolio remains resilient, and we are focused on helping customers that face difficult choices due to cost of living and other pressures. Pleasingly, our ROE is now back above 8%, and our return on tangible equity is above 10% with half 2 ROTE near 10.5%. Our 3 areas of focus that will support our 2030 ROE target are all progressing well. Our efforts in these areas will be further enabled by our risk uplift programs, which will strengthen our risk management frameworks and systems to support sustainable growth. Let me step you through the progress we've made this half. Our deposit-first approach to managing our balance sheet has been supported by digital deposit sales growth of 34% over the year, following the introduction of new digital onboarding capability in the Bendigo app, along with continued growth in our Up customer base. The enhanced functionality in the Bendigo app has materially improved the experience for new-to-bank and existing customers. EasySaver deposits continue to grow, up 10.7% over the year. And the introduction of Grow & Flow to Up-siders has helped grow Up's deposit balances by 45% over the year to reach $4.1 billion. Leveraging what we've learned, we will improve the functionality and experience for business and agri customers over the next 18 months with a sequence of improvements and uplift in the digital capability for B&A. This functionality we're building will make it easier for our customers to join the bank and further support growth in lower cost deposits. Turning to productivity. Our FTE numbers have reduced by 3.4% over the year, driven by the first phase of our productivity program. In April, at the quarterly trading update, we announced 2 significant strategic partnerships as part of the second phase of this program. And in July this year, we commenced a 7-year technology service partnership with Infosys, which will significantly improve IT service delivery and provide access to enhanced capabilities, software engineering and AI talent to deliver innovation capacity. We've also established our 6-year business operations partnership with Genpact, which will bring deep expertise in process optimization and delivery to drive greater productivity and support stronger process disciplines across the bank. And finally, to sustainable growth. We've seen some positive impact from recent targeted pricing through BENExpress and our Qantas partnership to support digital channel growth momentum in residential lending, which was up 1.9% in the second half. The Bendigo lending platform now accounts for 80% of home loan flow for the Bendigo brand, reducing time to decision for our customers and improving our productivity. The momentum behind Up Home continues, up 56% to $2.6 billion. And coming soon to Up-siders, in this half, the Up Home investment loan. We've been clear about our objectives for business and agribusiness to be at growth by FY '26 and above system in FY '27. We achieved our growth targets this year with agribusiness lending up 3.8% and business lending, excluding portfolio funding, up 8%. Since Adam Rouse has joined the bank in 2022, we've selectively grown our agribusiness book by more than 15%. And in business, we continue to build in business direct and the commercial broker channel. In FY '27, we'll be launching a new equipment finance platform to support both our agri and SME customers. I want to share how the 2 programs of work depicted here will serve as the foundation to strengthen our risk management frameworks and systems to support sustainable growth as we deliver on our 2030 strategy. In December 2025, the Financial Crime Transformation Program commenced with a focus on enhancing our enterprise-wide AML/CTF risk management. This program will deliver a material uplift in our ability to detect, deter and disrupt financial crime, and we continue to add capacity and capability to our financial crime operations team to support this work. We expect to invest $70 million to $90 million, of which $8 million was spent in FY '26. These expenses will be contained within our existing investment slate. Last week, we announced a rectification plan to address deficiencies in our management of non-financial risk. This multiyear program of work is expected to require an initial estimated provision of $70 million, which has been included in the 2026 financial year results. The plan will drive a fundamental shift in our risk maturity. Our approach to embed non-financial risk management into all aspects of the organization will ensure we can continue delivering for our shareholders, our customers, our people and our communities. This is the #1 priority for the Board and executive team and will be led by me. Andrew will run through the costs and associated treatment of these expenses in more detail shortly. Now for some more detail on our Financial Crime Transformation Program. We launched this program to significantly strengthen our controls against financial crime and enhance our AML/CTF framework. Since the announcement late last calendar year, we've acted with pace and purpose. We appointed a new AML/CTF Chief Compliance Officer in January, bringing in significant experience to drive this change. This program is well established across 5 dedicated work streams, and we're already seeing tangible results. We've upgraded our monitoring systems, improved controls and are leveraging our new partnership with Genpact to draw on their global expertise and capacity. Looking ahead, our focus remains on building a best-in-class financial crime function to help protect our customers and the broader community. And finally, I'd like to recap our progress on the first year of our 2030 strategy and the strategic deliverables we've achieved. We first spoke to the market about our new strategy this time last year, outlining the 5 strategic pillars and our 3 enablers that will help deliver on building scale through innovation. We recognize as a bank with 2% to 3% market share. Innovation, partnerships and capability will create the opportunities we need to grow efficiently. The FY '26 results demonstrate our progress on the 2030 strategy with the streamlining of our approach to both lending and deposits. The Bendigo lending platform is now being utilized by all of our retail branches in addition to our broker network. And approximately half of our new-to-bank customers are being onboarded digitally by the Bendigo Bank app. The migration of our Adelaide Bank customers to Bendigo Bank in December 2025 marked the completion of our multiyear core banking consolidation project. This key strategic program has delivered a simpler and more efficient bank and creates a platform for sustainable growth. Over the year, we've delivered several initiatives that will pave the way for the next phase of growth, including our partnership with Google. We currently have over 5,000 of our staff actively utilizing our Google AI platform, Gemini Enterprise, to support their daily productivity. Our partnerships with Infosys and Genpact will deliver the capabilities we need to maintain and improve our foundational technology, allowing our core technology team to drive improvements in data quality, cybersecurity and AI. And finally, we've appointed a new Chief Customer Officer for Consumer, Christopher Dean, who assumes the role in September. Christopher brings deep retail banking experience, most recently as Managing Director at HSBC U.K., where he managed a network of 300 branches and led digital banking services for 8 million customers. Christopher is well placed to help us deliver on our 2030 strategy by deepening our customer relationships and improving how we manage risk. I'd like to thank Adam Rouse for leading both customer divisions over the past 6 months and helping to bring a consistent, disciplined approach to customer experience across both networks. I will now hand over to Andrew.

Thanks very much, Richard, and good morning, everyone. First of all, let me confirm that there are no changes from the unaudited numbers, which we presented last week to the audited numbers we're presenting today. Going now into some of the metrics underpinning the second half result. Total lending grew 3.5% with strong seasonal growth in agri and business lending and a return to growth in residential lending, which grew around 0.6x system. We've also seen an improved funding mix with lower cost deposits now comprising almost 55% of total deposits. Through careful management of our funding requirements, we have continued to improve net interest margin, printing 1.98% for the half. And we've tightened our management of business as usual costs in the half, delivering absolute cost reduction compared to the first half. Given the uncertain macro environment, we've increased our collective provision and skewed scenario weights more to the downside. Our operating performance was 11.2% higher than the prior half, reflecting a combination of income growth and expense reduction. Cash earnings of $273.8 million was 7.7% higher than the prior half. With the improved operating performance, return on equity for the half improved to 8.26%. Our balance sheet is in a strong position going into the financial year 2027, reflected in strong capital, funding and liquidity. Turning now to total income for the half. Income of $1.04 billion was up 2.6% on the prior half. Net interest income increased 1.6%, reflecting an improved margin, offset by a small reduction in average interest-earning assets and the impact of 3 less days. Other income, excluding Homesafe was up 5%, reflecting improved wealth and cards income. Homesafe income was up 29%, reflecting 40% growth in completed contracts on the prior half and a slightly softer average profit per completion. In respect of key considerations, there are 2. First, we expect the RACQ transaction to complete during second quarter 2027. So you should expect a resultant uplift in income in year of between $33 million to $37 million, and that reflects around $2.6 billion of loans and around $2.3 billion of deposits and for this gap and LCR requirements to be funded most likely with wholesale funding. Second, as previously flagged, income from the Homesafe portfolio will reduce over time, subject to the rate and profit on contract completions. This half saw the number of open contracts reduced by around 4%, which is a slightly faster rate than the last 2 halves, whilst the average life of contracts completed through the half was around 10 years. Turning now to net interest margin. Compared to the prior half, our NIM was up 6 basis points to 1.98%. Asset pricing negatively impacted 4 basis points, which was due to a combination of front book pricing pressure in residential lending and ongoing retention pricing pressure in business and agri. Deposit and funding pricing improved 6 basis points, mostly reflecting the benefit of term deposit repricing. Mix provided a 4 basis points benefit, reflecting a combination of improved funding mix and improved asset mix. Income from our replicating portfolios was up 3 basis points as expected and revenue share negatively impacted 3 basis points. Our fourth quarter average NIM was 200 basis points. On key considerations for 1 half '27, we definitely see headwinds and a couple of tailwinds. On headwinds, there are 2. We see competitive pressure on both sides of the balance sheet and funding costs will also be a headwind, noting that we put some wholesale funding into the balance sheet in the fourth quarter. We also lifted term deposit pricing through the fourth quarter. On tailwinds, we think there is possibly one more cash rate rise, likely late in the first half and higher swap rates should see replicating portfolio contribution continue positively given the current delta between replacement yields and expiring tractors. Turning now to residential lending. Settlement volumes in aggregate were up 31% on the prior half with strong growth recorded in third-party and digital channels. This charge has improved following a spike in the first half, which was mostly due to the closing down of one of our partner channels. We continue to prioritize the deployment of capital into channels where both the economics are compelling and growth opportunities exist, being self-serve digital mortgages and our proprietary branch network. This half, around 35% of new settlements came through our physical network, whilst just under half came through broker intermediated channels and 15% through direct digital channels, including Up. The positive trends in our mortgage book continue. First, around 40% of new loans are below 60% LVR and almost 90% of new loans are below 80% LVR. And second, the average credit risk weight on new mortgages has continued to improve. Momentum in the book has slowed following the federal budget. We expect system credit growth for residential lending to ease to around 3% to 4%. At the same time, we see a lot of opportunity to continue to grow through our digital and our physical networks. Importantly, discharges also slowed progressively over the second half. So with this momentum in mind, we are targeting growth around system through financial year '27, although this may be influenced by the level of competitive pressure. On deposits, our deposit gathering franchise has strengthened this half. We continue to see good momentum in digital deposits. In our Up business, digital deposits increased 16% over the half, whilst Bendigo digital deposits grew 14% over the same period. Whilst deposit growth over the half looks modest at 1.1%, deposit mix has continued to improve. We continued to see strong growth in EasySaver accounts, which were up 3.4% on the prior half and overall savings accounts up 4.3%. Following a dip in third quarter, transaction account balances had a strong fourth quarter, finishing marginally lower than the prior half. We also saw offset accounts reduced almost 2% over the half. Whilst term deposit balances were down 0.6% on the prior half, we did receive our pricing in fourth quarter and recorded 3% growth for the final quarter. The overall picture is that lower cost deposits increased to 54.8% of total deposits, up from 52.5% just 12 months ago. Critically, our household deposit-to-loan ratio remains strong at 76%, which is 10 percentage points higher than the industry average. Turning now to operating expenses. As previously flagged, second half costs came in lower than first half, down 2.1%. Business as usual costs, which exclude remediation costs, reduced 1.1% over the half, mostly reflecting our ongoing productivity and cost management program. Spot FTE were 0.7% higher than the prior half, reflecting investment in our risk team as we continue our work on lifting risk maturity across the organization. In respect of financial year '27, we expect business as usual cost growth to be between 5% to 6%, including RACQ. This reflects 3 factors. First, we expect inflationary pressures to persist and inflation to stay around the 4s. Second, as we complete the RACQ transaction, we will bring $8 million to $9 million of costs into the organization in the year, which is in line with previous guidance. And third, we are making further investment in risk capability as we seek to uplift our maturity. We expect expensed investment spend to be flat year-on-year. And over the medium term, we reiterate our cost guidance, which is to keep BAU cost, which excludes remediation and investment spend contained to no higher than inflation through the cycle. Underpinning that, we expect to fully realize the benefit of our strategic partnerships in financial year '28. Moving to credit quality and credit expenses. Our key credit metrics remain sound, and we continue to carefully watch trends in the industry and within our book. Through the half, we booked a charge of $16 million, mostly related to an increase to collective provision, reflecting an expected deterioration in the economic environment. Our coverage of total provisions to credit risk-weighted assets has increased 3 basis points on the half and 2 basis points on the prior year. Gross impaired loans have continued to reduce down to now 13 basis points of gross loans. Arrears across the book remain low, but are increasing. 90-plus days arrears in residential lending have increased in the low-single-digit basis points in the last 6 months to 87 basis points. In agribusiness, arrears have reduced over the half and the dollar value of arrears has reduced. The technical issue that we have previously disclosed around expired facilities has mostly been resolved. Business arrears have continued to improve, now at their lowest level in a number of years. Whilst asset quality remains sound and arrears are at relatively low levels, we do expect bad debts to trend upwards over time. This half, we've included further detail on the composition of our business and agribusiness exposures. In our business book, excluding our portfolio funding business, over 99% of customers have loans of less than $10 million, and we have a very small number of large customers. Arrears in the portfolio are modest and 95% of the book is secured. In agribusiness, the profile is similar. Almost 99% of customers are sub-$10 million, and again, we have very few large customers. 99% of the book is secured. Our funding and liquidity metrics remain strong and well diversified. Our average liquidity coverage ratio for the fourth quarter was strong at 140.2%. The proportion of customer deposits to total funding reduced on the prior half to around 77%, following the raising of around $1.8 billion of wholesale funding to fund around $3 billion of asset growth. Our coverage of household deposits to loans at 76% is well above the industry average. Our community bank partnerships importantly provide us with a net $15 billion of funding, which provides further diversification and a relatively cheaper funding source than wholesale funding. To illustrate my earlier point on funding pressures, you can see that we have a large volume of term funding maturities to manage through financial year '27. Turning now to capital and dividends. Our CET1 ratio eased 3 basis points to 11.34% over the half, and this reflected a few key drivers. Earnings were impacted by lower statutory profits resulting from $59 million of regulatory provisions, which we took up as disclosed last week, which lowered CET1 by around 15 basis points. We did benefit through the half from some data and modeling enhancements, which lifted CET1 by 11 basis points. CET1 was also impacted 18 basis points by the APRA capital overlay reflected through a higher operational risk capital charge, which was effective 1 January, 2026. Our capital remains well above the Board target of above 10%. Directors have determined to pay a final dividend of $0.33 per share, which will be fully franked. This represents a 69% payout ratio for the half and on a cents per share basis is flat on the prior comparative period. So in summary, we're in a strong capital position going into financial year '27. Last week, we gave you a summary of some notable items into next year. So I wanted to now bring that picture together for you, along with a reminder of the benefits associated with a couple of our strategic programs. For financial year '27, as we disclosed last week, you can expect us to report on 3 key notable expense items. First is the cost associated with the implementation of our strategic partnerships of $56 million to $66 million. This is consistent with the disclosure which we made in early April of total costs of roughly $85 million to $95 million. Second is costs related to the migration of RACQ customers onto our core banking platform of $28 million to $34 million. This is consistent with the disclosure which we made in early December 2025. And third is a one-off methodology change to the mechanics of our staff equity scheme of around $16 million to $23 million. In aggregate, these costs will total between $100 million and $123 million pretax. We expect each of these costs to be isolated to financial year '27. As a result, our costs, including notables will be elevated and return on equity inclusive of notables will be diluted in financial year '27. To support our progress towards our return on equity target of above 10%, we are on track to deliver the benefits which we previously guided to on both our strategic partnerships and RACQ, as you can see on the right-hand side of this slide. So there's a lot of information which we've just run through. Let me summarize the total impacts across our key line items in financial year '27, and this includes income, expenses and capital. On BAU expenses, we expect to grow between 4% and 5% on financial year '26, excluding RACQ operating expenses. We expect investment spend to be in the range of $230 million to $240 million, inclusive of notables. We expect $120 million of that to be expensed, around $60 million to be capitalized and $50 million to $60 million of notable items related to our strategic partnerships and RACQ. So that means expensed investment spend pre-notables is expected to be flat on financial year '26. For RACQ specifically, on the basis that we complete the transaction during second quarter '27, we expect the following in-year impacts: First, NII of $33 million to $37 million; second, incremental OpEx of $8 million to $9 million; third, a 31 basis points impact to CET1 upon completion, reflecting the risk-weighted asset carry; and fourth, an uplift to return on equity of 23 to 27 basis points. I'll now hand back to Richard for closing comments.

Thanks, Andrew. To recap, our areas of focus for FY '27 are clear; embed our risk programs to drive a fundamental shift in risk maturity, continue to grow our deposit base, migrate the RACQ customers and leverage our strategic partnerships as we build a better bank. We remain committed to our target of an ROE of 10% by 2030, delivering long-term value for our shareholders, supported by the necessary uplift in our risk capabilities as we build a better bank. And finally, let me take the opportunity to thank our people, partners and customers for their continued support over what has at times been a challenging last 12 months. I'll now hand back to Sam to moderate the Q&A.

Thanks, Richard.

[Operator Instructions] I'll now hand back to Sam.

Our first question comes from Annabel Ross of Barrenjoey.

Hopefully, you can hear me okay. So I just wanted to go through the operating expenses guidance that you provided. So in FY '26, your operating expenses, excluding investment spend landed at $1,142 million. And your guidance for FY '27 operating expenses pre-notables and RACQ is to grow between 4% to 5%. If we then add in the RACQ impact, of which you're guiding to approx $8 million, this implies BAU expenses next year should be around $1.2 billion. Next, adding in the investment spend expense of $120 million, this means costs ex notables should land at around $1,320 million. If we then add in notables of $100 million to $123 million, this means total expenses should land around $1,420 million to $1,460 million in FY '27. Is this the correct way of thinking about it? And then just to add to that, in FY '28, you talk about the strategic partnerships, which are going to give a $65 million to $75 million benefit. And is this benefit required to keep the cost growth in '28 to around inflation or are you implying costs will fall further by that number?

Annabel, that was about 87 questions in one. So what we might do is just -- Andrew or Richard, if you could just give the top line on that expense guidance, that was probably not.

Yes. Over to you, Andrew.

So Annabel, just on your second question first, let me cover that off. So what we've previously said is that our business as usual cost growth ambition over the medium term is no higher than inflation through the cycle. To be clear, the benefit of the partnerships is included in that BAU cost growth of no higher than inflation. And the key reason for that is that there is a large part of our cost base or around 20% of our cost base, which is growing faster than inflation, and that is license, cloud and amortization costs. So what those partnership benefits will do is allow us to meet that BAU cost guidance no higher than inflation. That's the first question to cover off. Let me step briefly through then the second part of your question, which is how do we bring all these pieces together? And there is quite a bit of detail we've given, which I'll step through. So you're absolutely right. Our business as usual costs for '26 were $1,142 million. That is absolutely right. We then said add 4% to 5% on top of that, then add the run costs or the operating expenses for RACQ on top of that again. So that's $8 million to $9 million. So that total cost for BAU is around about 5% to 6%. Then there are a couple of notable OpEx items. So these are items that will only occur, we believe, in '27 and no further than that. So there's a proportion of the partnership costs, which we disclosed. That's somewhere between $34 million and $40 million. And then there's the incentive scheme adjustment, which is $16 million to $23 million. So that implies then that the overall costs are growing somewhere between 9% and 11%. That's the BAU costs. Then on investment spend, we've said the expensed investment spend, we expect to be flat year-on-year, so around about $120 million. Then there's a proportion of that partnership spend, which relates to investment spend, that's between $22 million and $26 million. So that means that our overall investment spend OpEx is between $142 million and $146 million. So hopefully, that's clear in the way that all those parts come together.

Our next question is from Kelsey Bentley of JPMorgan.

Richard and Andrew, I just wanted to ask a question on your outlook for mortgage growth. You talked to wanting to grow around system just based on competitive tensions, sort of see how that tracks. How does that sort of feed into the information you give on Slide 9, where you talk about the average mortgage NIM for new business, and we can see a pretty steady trend downwards over the last year. How is this sort of fed into your growth in particularly the fourth quarter of FY '26 and how you see things trending in FY '27?

Yes. It's a really good question, Kelsey, because I think we're all going to be facing a pretty dynamic year when it comes to the mortgage industry, given what has been happening from a government perspective with changes to tax rules, et cetera. From my perspective, I think we're reasonably well positioned to continue to see some growth going forward, particularly through a couple of channels that I'd like to highlight. First of those is the digital channel, which consistently has sort of been in that 15% to 20% of mortgage settlements for us. And we expect that will continue to see pretty steady growth. And with some of the pricing changes we've made recently in a couple of those offerings there. I think that will hold us in good stead. And the other one is we continue to mature the use of the Bendigo lending platform through our retail channel, where we expect we'll continue to see some growth there. We have seen a reduction in application volume from where they were through most of FY '26 by about 15%, but that has steadied now. And we're starting to certainly see some -- in the last few weeks, maybe a little bit of more resilience coming back to that market, but it is going to be dynamic this year. So that's why we're not giving any firm guidance on that. I don't know, Andrew, is there anything else you want to add?

Yes. Kelsey, just picking up your comment on Slide 9, part of the reason why we saw a dip in that NIM to credit risk-weighted assets, that's the chart on the top right-hand side is we did see an opportunity through the course of the half to write some fixed rate business, and we felt it was important to build some momentum. It was a little on the thinner side in respect of margin. The returns were still returns we were looking for. So that really is the explanator for that dip.

Our next question is from Sally Hong from Morgan Stanley.

I have a couple of questions. So firstly, you're targeting business and agribusiness growth at system for next year. What do you think system growth is for FY '27? And can you comment on the business and agri competitive landscape?

Yes. Sally, we're thinking that, that's going to be in the order of just above mid-single digits. Again, there's a little bit of wet finger in the air with this stuff, but probably in the order of maybe 6% to 7% growth just based on the resilience we've seen last year and over the last few months. We actually are pretty comfortable with the offerings that we've got that we can continue to see some solid growth coming through our business there. We clearly have some strength in the agri space. There were some concerns earlier this calendar year on the back of what happened in the Middle East that this was going to be a really challenging year for farmers around the country with fuel prices and fertilizer prices. But on the back of what has been a pretty good year in many parts of the country from a climate perspective, it looks like there will be another probably solid year from a yield perspective. So as we're looking forward, we think there are a number of areas that we can continue to drive that growth. Sure, things are competitive. There's always competitiveness out there in the market, although we're finding plenty of opportunity based on our relationship-based banking to find customers that are interested in joining us.

And just a second question on the margin. So the June quarter margin was around 2%, but you're flagging mortgage competition and term deposit repricing as headwinds with some benefit from the replicating portfolio to come through. Should we expect the first half '27 margin to be below this June quarter margin? And can you give us a sense of what those magnitude of those competing impacts would be?

Over to you, Andrew.

Sally, we don't normally give too much guidance on margin other than talk about the headwinds and the tailwinds. And as we said last week, we think there is -- there are definitely headwinds. And those headwinds you've just laid out, which are competition, which we're all seeing on a day-to-day basis on both sides of the balance sheet. And then in respect to funding costs, we can definitely see headwinds there. And so we have a wholesale funding cost ahead of us through the course of '27. We put some wholesale funding onto the balance sheet in the third quarter. So there's some headwinds there. And in addition to that, part of what drove our margin outcome in the half and to an extent in the final quarter was our approach in respect of term deposit pricing. And of course, as those term deposits further reprice when that book turns, there will be a headwind there. On the positive side, on the tailwind side, we can certainly see that in our replicating portfolio, particularly on the deposit side, the gap between front book tractors and back tractors is still quite wide. And so that will give us a benefit, assuming that 5-year swap kind of stays about where it is. And then we do think there's still a possibility of a cash rate rise. I think the market this morning is still implying somewhere between 60% and 65% by the time we get to the end of the calendar. And as you all know, what we have typically talked about in respect of our leverage to rates is roughly, roughly 2 basis points for every 25 in cash rate. So I can't give you any more specifics than that other than give you all of the various considerations.

Our next question comes from Andrew Lyons from Jefferies.

Just a question on investment and the progression out to your 2030 targets. Just your investment slate, you're now carrying a number of items that you describe as notables, and there's also the $70 million to $90 million that will come through over the next 2 years for AML. Now you obviously speak about your cost growth of sub-inflation. But just thinking about the impact of investment spend on that cost trajectory out to 2030. As some of these sort of programs, notable programs fall away, how should we be thinking about investment spend? Should we see it decline? Or will you be basically reinvesting in the broader franchises as those programs come to an end?

Yes. Look, it's a really good question, Andrew. It's one we ponder a little ourselves. So I can't give you a definitive answer. It's one of those things that we're going to need to turn our mind to over the next year or so. As you pointed out, some of those programs naturally start to wind down. This year, obviously, there's a fair bit of work going into setting up those new partnerships and the RACQ migration that will be finishing up. But at the same time, we'll be ramping up the work we're doing on the risk front, both the AML/CTF piece, but also the work we're going to need to do on the non-financial risk -- in the non-financial risk area. It is really going to be dependent on what is happening in the market and what is -- what are the investments we need to make to remain competitive and relevant going forward. I'd love us to be able to be in a position where we can see some reduction in that investment spend between now and 2030, but I'm not going to sit here and make that sort of commitment because things are changing so quickly in the technology space, in particular, that I'm not sure how that's going to play. There is -- the whole AI area is really interesting because you can mount an argument that, that's going to drive so much productivity from a development perspective that you should be able to do more for less. But at the same time, I'm not sure what sort of developments we're going to need to implement within our organization to keep up with the industry and our customers' expectations importantly.

Just one other point, Andrew, sorry, just before you go to your next question, the rectification claim that Richard mentioned, we did provide for in our '26 results. So that's not part of our investment spend. That's already been put on the balance sheet, and we will draw that. So I just want to make sure that's clear.

No, that's clear. And maybe just -- thanks for those comments, Richard and Andrew. Just Andrew, one for you. And again, it's similar to the previous question or maybe a bit of an extension, just around the replicating portfolio. And I assume sort of swap rates remain where they are at the moment, and that's purely an assumption. But how long would you estimate, if that was the case, that you'd have an ongoing tailwind from your replicating portfolio, if you were to make that assumption?

Yes, I think -- so there's a couple of big ifs in that, Andrew. So if swaps stayed where it is now, there's probably another, I would say, 12 to 18 months of benefit ahead of us. And that's really a function of where those back tractors sit right now relative to where we're printing front tractors.

Our next question is from Ed Henning at CLSA.

Just a couple of follow-ups. Just firstly, on the margin. Andrew, you talked about you put in some more wholesale funding and there's some more to do and you increased your TD prices in the fourth quarter where you've got a benefit through the half. Can you just talk about your margin? Obviously, you printed 2% in the fourth quarter. Is the exit from that down a little bit given TD pricing up, wholesale funding coming through and then to think about then going forward with the headwinds of competition and that? That's the first question.

So Ed, we're not disclosing what the exit NIM actually was. What I can tell you is that the term deposit book doesn't reprice straight away. So there's new business that comes through, there's roll. So there's a progressive reprice that will happen in the term deposit book. It then depends on what tenors customers choose. So if we've got customers that are on a 12-month rate and they were on that rate 9 months ago, then clearly, there's going to be an impact as those term deposits roll. Similarly, with wholesale, that's a part impact that will have come through in the fourth quarter and then that more full impact will play out into next year. What I will say, just in the interest of balance is that we do have a pretty substantial maturity profile into next year, which we're going to be refinancing. I would hope that we do better in respect of spread. So where those deals were printing 3, 4, 5 years ago, depending on the tenor, our spreads would have been basis points wider than where we've been able to write wholesale business recently. So whilst the volume of wholesale funding will certainly increase, I'd hope to see some better spread as we print in whichever form of execution we choose.

Okay. That's helpful. And then just a second question, thinking about kind of cost and revenue growth going forward. You're talking about some margin headwinds. You've got Homesafe rolling off a little bit, and you've got substantial investment going into -- through your P&L just on regulatory and compliance. If we do get an environment where the revenue growth starts to fall for the system, how much discretionary spend do you have that you're able to pull back on spending? Or how should we think about that with -- obviously, the regulatory spend that's got to come through?

Yes. Thanks, Ed. From my perspective, that's the reason we're doing things like these strategic partnerships to give us more flexibility there. And they are, by their nature, costs that we can flex depending on the resources we're requiring from those areas. So if we think about things like operations that there's less volume going through, we require less support in processing areas and the like. And likewise, with the relationship with Infosys, we can make some decisions to flex up and down. Now that's generally though around the edges. The reality is there's significant fixed costs in running a bank. But look, we're always conscious of the revenue environment and in how we then look to manage our cost base to try and make sure that we can continue to generate strong returns and over time improving returns for our shareholders.

Our next question is from John Storey at UBS.

Hopefully, you can hear me. I just wanted to kind of to Ed's question just around the deposit benefit that you saw, right? I'd be quite interested to just get a high-level understanding of your strategy in terms of how you think about deposit pricing, particularly on your savings product and just the elasticity of your rates, I guess, and how clients potentially can kind of think about potentially moving to other banks relative to your rates relative to peers would be helpful.