Investec acquisition boosts BOQ mortgage profitability

BOQ acquired Investec’s professional finance, asset finance and leasing businesses in April this year for $440 million.

Research by Morningstar has found that BOQ’s margins will lift on the high-margin Investec acquisition, improved credit rating and less intense pressure on retail deposits.

However, Morningstar analyst Nathan Zaia notes that these are partially offset by the run-off of high-margin line-of-credit product and intense price competition on mortgages.

“We assume net interest margin, or NIM, trends higher from 1.83 per cent in fiscal 2014 to 1.95 per cent,” Mr Zaia said.

“NIM at the end of fiscal 2014 rose to 1.87 per cent when including one month’s contribution from Investec,” he said.

“Improvement in risk management and [a] stronger balance sheet are conducive to the firm sustaining the higher NIM going forward.”

While the bank has lost mortgage market share by being inactive in the third-party channel, unwinding of line-of-credit products, and its exposure to the lacklustre Queensland market, the digitisation of home loans is expected help drive volumes going forward.

“A key initiative is the digitisation of home loan applications,” Mr Zaia said.

“While late to market, the initiative simplifies the process for owner-managers and mortgage brokers and should lift productivity and drive application volumes and eventually flow through to an improved cost-to-income ratio,” he said.

BOQ’s recent alliance with 1,500 brokers is expected to increase to 2,500 by the end of 2015, according to Morningstar.

“The significance of this is highlighted by broker-originated mortgages accounting for 14 per cent of BOQ’s applications in August 2014,” Mr Zaia said.

“The acquisition of Investec, rebranded “BOQ Specialist” is also a new mortgage origination channel,” he said.

Mortgages written by BOQ Specialist using third parties was about $1 billion last financial year.