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SYDNEY, Feb 18 AAP

February 18 2013, 3:22PM

A key factor cited by banks for not passing on the central bank's rate cuts may soon be a thing of the past, Bendigo and Adelaide Bank boss Mike Hirst says.

The cost and availability of wholesale funding for loans has improved materially in recent months, he said, as Bendigo more than tripled its first half net profit.

That should lead big banks to seek more of a balance between sourcing funds from deposits and wholesale markets, after focussing on deposits since the global financial crisis.

Competition for deposits caused interest rates on accounts to rise, and was a reason given by banks for not cutting mortgage rates by as much as the Reserve Bank of Australia's cash rate in calendar 2012.

"I would expect that, as long as there's continued strength in those wholesale funding markets, I would think there will be some abatement of the pricing around retail deposits," Mr Hirst told analysts on Monday.

Bendigo on Monday reported a $189.4 million profit for the six months to December 31, more than triple its $57.9 million profit in the same period the previous year, a result impacted by $95 million in asset value writedowns.

Cash earnings, which excludes one-off financial items, were $169.7 million, up 4.4 per cent from the previous corresponding period.

Bendigo's net interest margin, a measure of its profits on loans, increased by 10 basis points over the six months to December, reflecting lower funding costs.

The results sent the bank's shares higher, up 32 cents, or 3.3 per cent, to $10.17 at 1509 AEDT.

But it was not all positive news for Bendigo.

Bad debt charges rose to $32 million in the first half of the financial year, due partly to falling house prices in rural areas, and particularly in north Queensland.

But leading indicators of credit quality, such as 90 day arrears and impairments, have continued to subside, chief financial officer Richard Fennell said.

"This does give us some hope that what we've seen in the last 12 months is more of an aberration rather than the start of a trend," he said.

"Although as we've seen in the last 12 months, you can't always predict what's going to come through."

Bendigo declared a fully franked interim dividend of 30 cents per share, consistent with the same period in the previous year.

By Drew Cratchley