Bendigo Bank (ASX:BEN) Beats on Profit but Reveals $90m AUSTRAC Bill- Is This the Risk Income Investors Are Ignoring?

Bendigo Bank AUSTRAC Risk: Is the Yield Worth It?

Bendigo and Adelaide Bank (ASX: BEN) fell over 2% on Monday after delivering a half-year result that looked decent on the surface but raised some tough questions underneath. Cash earnings were A$256.4 million for the six months to December 2025, and earnings per share came in at 47 cents, slightly ahead of the 46-cent market forecast. The board also kept the fully franked interim dividend unchanged at 30 cents.

So why did the share price fall? Because the details were less encouraging. Cash earnings were down 3.3% compared with the same period last year, the home loan book went backwards, and the bank said fixing its anti-money laundering issues will cost between A$70 million and A$90 million over the next three years. With the stock up just 1% over the past year while the broader banking sector has done much better, investors are left asking a simple question: Is a 5.6% fully franked yield enough to make up for these risks?

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Margins Up, Loans Down – A Bank Fighting Itself

The clear positive was the net interest margin, essentially what Bendigo Bank earns on each dollar it lends. This improved to 1.92%, well above the major bank average of around 1.78%, thanks to growing cheaper deposits, which now make up 53.8% of the funding mix. On pricing, management is doing something right.

The problem is volume. Residential lending fell 2.3% to A$65.1 billion after Bendigo Bank exited a legacy mortgage partner business. Total loans contracted 1.9%. Banks need both strong margins and growing volumes, and Bendigo is currently delivering only one of these.

Management expects lending to bounce back in the second half, citing the RACQ Bank acquisition, which is expected to add roughly 90,000 Queensland customers. But RACQ won’t boost earnings until FY27. The growth story is a promise, not proof.

The A$90 Million AUSTRAC Cost That Could Define BEN’s Next Two Years

The most important part of the result was the compliance cost disclosure. AUSTRAC is still investigating Bendigo after a Deloitte review last year found serious weaknesses in its money laundering controls. APRA has already imposed a A$50 million capital charge.

Bendigo now expects to spend A$70 million to A$90 million over three years to fix these issues, starting with roughly A$15 million in H2 FY26. That’s around 10 to 12% of annual cash earnings redirected from growth into compliance repair. And this doesn’t include any potential AUSTRAC fine. Westpac paid A$1.3 billion, and CBA paid A$700 million for their AML failures. Bendigo’s situation looks less severe, but the risk remains open.

Management has also set a return on equity target above 10% by 2030, four years away, which tells you current returns aren’t good enough. In our view, this is the hidden drag: the bank is spending big to fix problems, not to grow, while the dividend stays flat and loans go backwards.

The Investor’s Takeaway for Bendigo Bank

At around A$11.20, Bendigo and Adelaide Bank is trading at or above the analyst consensus target range of roughly A$10.42 to A$11.04. As a result, most brokers currently rate the stock as “Hold” or “Sell.”

The main reason to own BEN is the 5.6% fully franked yield. For income-focused investors who value regular, franked dividends, it still does the job. However, in our view, that yield is compensation for taking on regulatory risk, slower growth than peers, and ongoing uncertainty around AUSTRAC compliance costs.

For investors seeking bank exposure with better momentum, the big four banks have produced stronger results this reporting season. Bendigo Bank could see an improvement once RACQ starts contributing and loan growth picks up again, but that is unlikely before the second half of FY26. At today’s share price, we see limited upside beyond the dividend alone.