Bank of Queensland has reported the first full year of growth in its mortgage book for seven years, as a range of business improvements took effect.
While the strong performance in mortgage lending was the highlight for BOQ in the year to August, it also reported a higher net interest margin, income growing ahead of expenses and a big jump in net profit.
The bank made a net profit of A$369 million in 2020/21 – an increase of 221 per cent over the previous year.
The result included two months of ownership of ME Bank. Leaving ME out of the equation, profit was up 206 per cent to $352 million. And on a cash basis (and excluding ME), earnings increased 73 per cent to $389 million.
Income rose 5 per cent to $1.2 billion, while operating expenses rose 3 per cent to $633 million. The cost-to-income ratio fell from 54.9 per cent to 53.3 per cent year-on-year.
After reporting a loan impairment expense of $175 million in 2019/20, the bank released COVID provisions and made an impairment gain of $20 million.
The net interest margin rose four basis points to 1.95 per cent, thanks largely to the funding cost impact of low deposit rates and borrowing from the Term Funding Facility.
Return on equity rose from 5.4 per cent in 2019/20 to 8.2 per cent for the year to August.
The bank’s common equity tier 1 capital ratio rose 2 bps to 9.8 per cent.
The big news was in BOQ’s mortgage business, where it has struggled for a long time. The home loan book grew by 9 per cent to $34.1 billion.
Growth came from all parts of the retail business – BOQ Housing, BOQ Specialist and Virgin Money. Settlement volume grew 55 per cent.
BOQ chief executive George Frazis said loan approval times improved, even with higher volumes, and there was a focus on providing better service to brokers and in branches.
He conceded that one of the group’s challenges in the year ahead would be to restore ME Bank to growth. ME lost ground in mortgage and personal lending, and credit cards in the year to June.
Credit quality was sound, with home loans in arrears by 90 days or more falling from 85 bps to 55 bps.
Business lending also grew, after a sharp fall in 2019/20.
Customer deposits grew 9 per cent to $38 billion and the deposit-to-loan ratio was 75 per cent.
Frazis said the bank was on track with the implementation of a range of digital banking initiatives. Over the course of the year the bank completed a core upgrade, set up a new card management system and introduced mobile-first capabilities for everyday banking.
He said that over the next couple of years BOQ would introduce digital home loan origination, expand its mobile-first capabilities and work on its ME Bank integration.