Bendigo Bank is sharing the risks and rewards of business locally


Many lending institutions use the term “community bank”, but Bendigo Bank, Australia’s second-oldest “deposit-taking” institution, was, literally, created to serve a community. Founded in 1858 during Victoria’s gold rush, the bank’s original mission statement established the goal of helping the residents of the Bendigo gold fields “in acquiring their homes upon easy and convenient repayment terms in keeping with their earnings, and, at the same time, providing a profitable form of investment for the thrifty investor”. Unspoken in that motto, but very much evident through all its actions, was Bendigo Bank’s desire to build a permanent and prosperous community from what was, at that stage little more than a collection of tents and huts grouped around alluvial diggings.

A century and a half later, the relationship between banks and the communities that they serve has become strained. Between 1993 and 2000, more than 2050 bank branches – almost a third of Australia’s branches – closed their doors, leaving many communities without banking facilities. This caused community decline: when people were forced to do their banking outside of their communities, they took their shopping dollars with them.

In response, Bendigo Bank altered its banking method to serve a changing economy. Its new banking model, “Community Bank”, is designed to share the risk and rewards of banking with local communities. Bendigo Bank’s Community Bank branches are operated by locally owned companies, each of which has between 300 and 500 shareholders.

These Community Bankbranches are operated as a franchise: Bendigo Bank provides the coverage of its banking license, a full range of banking products, and deposit protection. It trains the staff and gives ongoing support. The local companies, on the other hand, employ the staff and pays branch running costs.

In return for this partnership, the bank and the community each receive a portion of the branch’s revenue. When the community company begins to make a regular operating surplus, its profits are reinvested back into the community, either through grants or by paying local shareholders a limited dividend.

Decisionmaking is also local: the community companies have (in the main) local volunteer directors, who decide how the reinvestments are made. The grants go to project, programs and causes that these local volunteer directors identify. The articles of the community companies limit the amount that can be paid in dividends to the local shareholders.
In 1998, Bendigo Bank opened its first Community Bankbranches in Rupanyup and Minyip, two small Australian farming communities that had lost their local banking facilities. In the sixteen years since the then-pilot program launched, the twin branches have channelled more than $700,000 in local profits back into community projects.

Today, Bendigo Bank is Australia’s 5th biggest retail bank. Its Community Banknetwork has over 308 branches that employ over 1,500 staff members and over 1,850 directors. In total, the network includes more than 1m accounts across Australia.

In terms of social impact, Bendigo Bank’s Community Banknetwork has channelled over $130 million in donations to local groups and projects. Its proceeds have built – or seed-funded – community halls, aged care facilities, medical practices and parks. They have bought community buses, fire trucks, rescue equipment and kitchen facilities. They have funded scholarships and have sponsored hundreds of clubs and associations.

Less tangible, but no less real, is the impact that the Community Bankprogram has had on community morale. Many of its communities had been neglected by service providers and were withering on the vine. Today, they are revitalized. Main streets once filled with abandoned stores are now repopulated with people shopping at newly leased premises.
The program has also invested in the human capital in its communities. By training local Community Bankdirectors, Bendigo Bank has been able to inject capability and collaborative skills into these towns and suburbs, re-equipping them to deal from a position of financial strength with corporations and the government. It has given their citizens the tools – and focus – that they need to ensure that they receive their fair share of public funding and attention.

Of course, Bendigo Bank’s Community Bankbranches have also been good for business. The bank has been able to rapidly expand because its community partners provide the capital needed to establish their branches. Bendigo Bank has also been able to open in communities that it would have had no hope of servicing under a traditional banking model, because customers now have a big incentive to bank with their local branch.

Taken as a whole, by partnering with communities, Bendigo Bank has been able to generate a far higher market share than it would have produced had it acted alone. Bendigo Bank has over $27bn of Community Bank business on its books that it otherwise could not have accessed.

This isn’t to say that Bendigo Bank’s community partnerships have been frictionless. The bank’s needs do not always align with those of the communities that it serves; for that matter, integrating services, products and marketing across 220 community bank-owning companies can be a daunting challenge. But at the end of the day, the Community Bankprogram just formalizes a reality that many banks seem to have forgotten: communities are – and always have been – stakeholders in the banks that serve them.

Sam is Head of Community Bank® Model Development at Bendigo and Adelaide Bank Limited responsible for exploring opportunities for Bendigo Bank to spread its experience and expertise in Community Bank in new markets.

To learn more about Bendigo Bank’s community model, click here.

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