BOQ adds $2bn to loan book amid market ‘challenges’

Bank of Queensland (BOQ) yesterday announced interim cash earnings after tax of $179 million for the six months to 29 February. Statutory profit after tax rose 11 per cent to $171 million on the prior comparative half.

BOQ chief executive Jon Sutton said the result was driven by above system housing lending growth and strong asset quality levels.

“Over the half, we continued to make good strategic progress while successfully balancing our growth, margin and risk priorities in a market featuring high levels of competition, volatile wholesale funding markets and regulatory uncertainty,” Mr Sutton said.

“Our ability to navigate these challenges and deliver a positive half-year result reflects the underlying strength of our business and positions us well for the future,” he said.

BOQ achieved above system loan growth of $2 billion (1.2x system) for the half, predominantly as a result of its decision to diversify distribution channels.

Housing mortgage growth for the half was $1.7 billion (1.6x system), driven by strong growth through BOQ Specialist and the broker network.

Growth in these channels also improved the bank’s mortgage portfolio diversification outside of Queensland and increased its lower LVR lending relative to the portfolio.

BOQ’s commercial lending growth was 6 per cent (0.5x system) for the half as it maintained a focus on credit quality and appropriate pricing for risk within its targeted niche segments.

BOQ Specialist’s commercial loan book grew 14 per cent to $2.4 billion year-on-year, while the BOQ Finance portfolio grew 1 per cent (0.6x system).

Mr Sutton said BOQ’s return to growth was a key highlight of the result.

“The momentum in the broker channel and BOQ Specialist demonstrates the effectiveness of our strategy to expand our business. We also made good progress with growing our target niche commercial segments,” he said.

BOQ maintained its 1H16 net interest margin at 1.97 per cent. Mr Sutton said benefits from repricing initiatives during the half were partially offset by front book and retention pricing.

“The targeted loan growth in new channels has resulted in a better quality loan portfolio that will support longer term balance sheet durability,” he said.

BOQ’s total loan impairment expense was flat on the prior comparative period at $36 million. Total impaired assets across retail, commercial and BOQ Finance fell 7 per cent to $240 million.

“The successful implementation of our strategy is evident. It has helped diversify our housing loan book geographically with 62 per cent of lending settlements in the half originating from outside Queensland,” Mr Sutton said.

The BOQ chief said he didn't expect the competition and funding headwinds that have emerged over the last six months to disappear quickly, but he remained confident that the bank’s strategy and operating model would enable it to continue to build sustainable financial performance.

“Our retail lending origination program, the expansion of Virgin Money mortgages and our specialist niche strategy will help us grow our business further.”

Mr Sutton said Australia’s transition away from a resources-led economy was ongoing. This presented good opportunities for expansion in the niche segments BOQ is targeting.

He added that he was also optimistic that the future regulatory environment would provide additional opportunities for standardised banks like BOQ.

“Although the final outcomes of Basel IV remain unclear, we remain confident that we will see further convergence between the advanced and standardised approaches to regulatory capital.

“This should provide opportunities for BOQ to either drive additional growth, expand margin or potentially achieve both outcomes.”

[Related: BOQ Specialist names new CEO]