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Lending ‘momentum’ offsets dip in BOQ earnings

BOQ
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The non-major has continued to recover lost ground in the home lending space. However, a rise in interest income has not been enough to prevent the bank from recording a slide in cash earnings.

The Bank of Queensland (BOQ) has released its financial results for the first half of the 2020 financial year (HY20), reporting a 56 per cent increase in total lending growth, from $500 million in HY19 to $781 million.

The improvement was largely driven by a sharp increase in home lending growth, from just $39 million in HY19 to $507 million.

A $411 million contraction in BOQ’s retail home lending portfolio was offset by $489-million growth via Virgin Money Australia (VMA) and $459-million growth via BOQ Specialist (BOQS).

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As a result, BOQ’s total mortgage book increased to $31.5 billion, making up 67 per cent of its overall loan portfolio, which currently totals $47 billion.

BOQ managing director and CEO George Frazis partly attributed lending “momentum” to an improvement in the bank’s processing capabilities, with the bank stating that time to pre-approval has declined from an average of five days to an average of two days.

“It’s pleasing to see the momentum building in both the housing and commercial portfolios,” he said.

“Both VMA and BOQ Specialist have continued to grow their housing portfolios, with BOQ Retail still contracting but driving an improvement on the previous periods through increased acquisition volumes.”

Loan growth contributed to a slight increase in BOQ’s net interest income, up 1 per cent to $483 million. However, this was offset by a decline in BOQ’s net interest margin, down 5 bps to 1.89 per cent.

Total operating income was flat at $542 million, while BOQ’s operating expenses increased by 9 per cent, from $268 million to $292 million.

BOQ’s mixed earnings result spurred a 10 per cent decline in the group’s cash earnings after tax, from $167 million to $151 million.

The bank’s statutory net profit after tax plunged 40 per cent to $93 million. However, BOQ noted that the decline reflected investment in the lender’s transformation strategy.

COVID-19 impact

In addition to withdrawing its financial guidance for FY20 in light of the economic fallout from the coronavirus (COVID-19) outbreak, BOQ has deferred its 2020 interim dividend payment to shareholders.

BOQ’s decision was in response to new capital management guidance form the Australian Prudential Regulation Authority (APRA).

Earlier this week, APRA advised authorised deposit-taking institutions (ADIs) and insurers to “limit discretionary capital distributions in the months ahead”, in order to “ensure that they instead use buffers and maintain capacity to continue to lend and underwrite insurance”.

APRA stated that during at least the next couple of months, it expects that all ADIs and insurers would:

  • take a forward-looking view on the need to conserve capital and use capacity to support the economy;
  • use stress testing to inform these views and give due consideration to plausible downside scenarios (periodically refreshed and updated as conditions evolve); and
  • initiate prudent capital management actions in response, on a pre-emptive basis, to ensure they maintain the confidence and capacity to continue to lend and support their customers. 

Commenting on BOQ’s decision, chairman Patrick Allaway said: “BOQ understands the impact of this decision on shareholders, however, also acknowledges this guidance as a prudent step for the industry.”

Reflecting on BOQ’s capacity to manage the current virus-induced economic crisis, CEO George Frazis said the bank is “well positioned” with a “strong balance sheet, capital and liquidity buffers, and sound asset quality”.

“While it remains difficult to assess the impact of COVID-19 on the economy, our customers and, as a result, our business, we are well positioned to adapt to this challenging, rapidly changing environment,” he said.

“We remain focused on the execution of our strategy, building on the strong foundations to deliver a return to growth when the economy improves.”

 [Related: BOQ unveils new strategy amid lending resurgence]

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