Managing to reduce the high funding costs it incurred last year, Bendigo and Adelaide Bank Ltd (ASX: BEN) subsidiary, Rural Bank Ltd reported on Monday that its full year net profit jumped by 23 percent thanks to the bank's much better interest margins in the same period.

The bank said that its profit for the past 12 months leading to the end of June increased to $55.4 million, coming from the $45.1 million it earned a full year before and chief executive Paul Hutchinson said that the bank could point to its improved interest margins as major contributor for the impressive results.

Mr Hutchinson also lauded the bank's operating model as a point of strength for Rural, with its efficient cost structure furthering the bank's performance in reducing cost to income ratio by 25.6 percent in 2010 as against the 27.8 percent posted in 2008/09.

He added that Rural Bank's loans under management steadied at $3.667 billion by the year's end while its rural debt market saw a slide of about two percent over the same period, with up to 98 percent of its funding base in the form of retail deposits.

Mr Hutchinson said that uncertain economic conditions and plunging worth of rural lands dwarfed rural debt growth in the last 18 months though he countered that "rural debt demand should increase in the near future as the fundamentals for the agricultural sector remain strong."

He said that growth indicators have been showing encouraging signs lately as commodity prices such as wheat's saw considerable spikes in the past few weeks, adding that the onset of substantial amount of rainfalls on the eastern seaboard should kick off a relatively "good start for the cropping season and excellent pasture for livestock."

Rural Bank is 60-percent controlled by Bendigo and Adelaide Bank while agribusiness company Elders Ltd maintains a 40 percent interest in the bank.