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The Bank of Queensland (BOQ) revealed some issues recently in its Annual Reporting 2024. Between the financial year 2023 and 2024, profits fell 24 per cent, to $343 million.
CEO and managing director at BOQ, Patrick Allaway, has come forward to address the issues the bank has had, highlighting plans for “transforming” BOQ’s services.
“We’re transforming BOQ to a simpler, specialist bank with an improved customer experience and enhanced shareholder returns. I’ve previously said that transformations of this scale are difficult, take time and are particularly challenging against the current backdrop of industry headwinds,” said Allaway.
“This management team has taken the challenge. We have acknowledged our legacy and structural disadvantages, been transparent, held ourselves accountable and outlined the clear strategy to address and transform BOQ. We have navigated the Bank through two difficult years and over the past four halves have demonstrated discipline and consistent execution. We are starting to see the benefits of our transformation.”
Moving away from home lending has been the talk of BOQ for some time, as back in August, the bank paused all new home loans via the broker channel. Digital and specialist banking is now taking priority.
“We’ve spoken for some time about our home lending contraction as we prioritise the economic return over growth. We are continuing this discipline and recycling lower returning home lending capital while returns are not yet sustainable. We anticipate returning to growth once we’ve reduced our cost to serve through digital mortgages and restructured distribution channels delivering a lower cost operating model,” Allaway said.
“While we’ve continued to grow home lending through our lower cost acquisition ME channel, we have paused lower returning legacy platform origination through BOQ and VMA broker channels and continue the originating through our BOQ branches.
“In August we announced the strategic decision to convert all 114 owner manager branches to corporate branches which is expected to be completed by March 2025. This decision addresses an unsustainable economic model. Structural market shifts including changing consumer habits and our complexity, it gives us the opportunity to align our branch structure with our digital and specialist banking strategy including branch consolidation and investment in business banking growth corridors.”
The lender is seemingly going down the road of CBA. For some time, BOQ has fuelled rumours of a third-party exit. Allaway said that digital banking products will be rolled out across BOQ, ME Bank, and Virgin Money Australia in FY25.
“The roll-out of digital mortgages, ME customer migration and decommissioning of our legacy core banking platforms will deliver material productivity benefits in FY26,” he said.
“We have now completed the foundational build of our digital banking mortgage product and originated our first digital mortgage in August of this year. This is a key delivery proof point in our transformation, digitising end-to-end home lending with materially improved customer experience, reducing our cost to serve and reduced operational risks. This scalable platform will be rolled out across all three of our brands in FY25.”
Allaway said that the lack of returns from the broker channel is a major contributor to these decisions.
“We have paused on BOQ Broker and VMA Broker, where we are not getting economic returns and where we are booking mortgages on our legacy platform. We will obviously review that once we roll out digital mortgages over FY25. We are still pursuing mortgages through our BOQ branch network. That will become a proprietary channel for us as well, which we’ve obviously talked about in March, so that’s the shift and the difference between our channels. There’s no material pricing difference between the channels, but it’s really where the respective channels sit from a cost-to-serve perspective,” he said.
“We are not seeing the benefit of digital mortgage yet. We have written our first digital mortgage in August, we’re going through a pilot friends and family testing at the moment. We will roll those out and look to scale towards the back end of FY25, so you will only start to see the benefits the economic benefit and the returns coming through, scaling of that, late 2025, but certainly through full 2026.”
Despite this, in regard to commercial lending, Allaway said BOQ will continue to leverage brokers.
“Brokers are a very, very important channel for us, so we’re not underestimating that. We will also leverage our broker relationships as well, but we have a very strong proprietary channel. We see this as relationship driven, in particular when we think about our heritage in Queensland and our competitive advantage in Queensland, that proprietary channel and those relationships are very strong and we will continue to leverage that,” Allaway said.
While there were troubles in the home lending space, commercial avenues saw growth for BOQ, influencing the decision to prioritise business banking.
Allaway said: “The finance company is a differentiated strategic asset for the Group, delivering higher returning niche product capability across asset finance, novated leasing, structured finance and insurance premium funding. Excluding the impact of the New Zealand asset finance sale, the portfolio grew 1.6 per cent in FY24 and 4 per cent in the second half.
“Importantly, in this area of our business we have a strong competitive advantage and a lower relative cost to funding than key peers. The portfolio is well positioned for continued growth.”
Whether brokers get the flick altogether may rest on the success of BOQ’s digital home loan service. The outcome should be determined in the coming years.
Related: BOQ fails to quash fears of third-party exit
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