Bendigo and Adelaide Bank arrears are running lower despite the recent interest rate increases.

Higher interest rates were not leading to a significant rise in back payments, chief financial officer Richard Fennell said in a UBS financial services conference in Sydney yesterday.

Bendigo's proportion of arrears that are 90 days past overdue to its total loans eased to below 0.94 per cent in May.

Although these went up to 1.2 per cent of Bendigo's loan book in January the previous year, they have been below 1 per cent since August.

Clients have made more retail term deposits at the bank, with its term deposit base reaching $19.5 billion, up from $18bn at December 31 last year. Retail call deposits, however, slumped to $10.3bn last month, taking the bank's total retail deposit base down 7.5 per cent since December to $29.8bn, Mr Fennell said.

Up from 85 per cent in December, retail funding now backs 87 per cent of Bendigo's on-balance sheet loans.

Among all the major and regional Australian banks, Bendigo has the least reliance on offshore wholesale markets to fund its operations.

Last month, 10 per cent of its off-balance sheet funding came from wholesale markets, mainly in Australia.

The bank's cost to income ratio went down from April to May and was running at about 57.5 per cent.

In February, Bendigo projected its then cost-to-income ratio of 57.7 per cent to stabilize during the second half of 2009-10. The company said that a long-term target of 55 per cent was realistic.

"We think the fundamentals of the business are very sound and we've got a very low-risk balance sheet," a Bendigo spokesman said yesterday.
Bendigo will release its full-year 2009-10 result on August 9.
Shares closed down 8c at $8.55.