What could rising interest rates mean for the Bendigo Bank share price?

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

At the time of writing, shares in the bank are swapping hands less than 1% higher at $8.61 apiece on no news.

In broad sector news, the Vaneck Australian Banks ETF (ASX: MVB) – an exchange-traded fund (ETF) tracking the banking basket – is up around 1% on the day.

Rising rates and the Bendigo Bank share price

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

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

It then reclaimed the entire down-leg of this move and thrust to 52-week highs on 12 August before racing to its 52-week lows less than a month later, seen below.

The rapid succession of highs-lows-highs and then back again might be mistaken for the failed results of a lie-detector test, but rest assured, there is plenty of truths in the pressures Bendigo faces.

Chief to the investment debate for Bendigo and its banking counterparts looking ahead is the talk around the Reserve Bank (RBA), interest rates, and inflation.

Ultimately the three are intertwined but what’s set to impact Bendigo most – either positively or negatively – are key interest rates set by the RBA.

Theoretically, an increase in the level of commercial interest rates is a positive for banks, seeing an increase in banking net interest margins (NIMs), resulting in higher cash earnings.

However, as noted last week, banking shares have underperformed in spite of this perceived sector specific tailwind.

Further, the Australian residential mortgage market is tremendously overcrowded with many, many players involved – both banking, and non-banking.

The result is a more competitive pricing environment as interest rates increase, which makes it difficult for those with weaker loan and/or deposit books to outperform.

When it will return to a more benign pricing environment – no one knows, especially as the near to mid-term outlook for the real economy is equally as unknown.

Nevertheless, analysts at Macquarie are constructive on the sector and believe the new interest rate regime could provide a “sugar hit” for the industry.

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

Meanwhile, the Bendigo Bank share price is down more than 5% this year to date, having slipped nearly 11% into the red in the past 12 months.

The post What could rising interest rates mean for the Bendigo Bank share price? appeared first on The Motley Fool Australia.

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More reading

• Why rising rates are a ‘sugar hit’ for ASX 200 bank shares: Macquarie
• Why is the Bendigo Bank share price dipping on Monday?
• These ASX 200 shares are going ex-dividend on Monday
• Hoping to deposit the latest Bendigo Bank dividend? Here’s what you need to know
• Reason for hope as ‘worst month of the year’ starts off badly

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Bendigo and Adelaide Bank Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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