Bank of Queensland chief executive George Frazis says his aim is to grow assets a little above system, optimise margin and grow revenue, but the group’s 2021/22 financial report shows just how hard it is to achieve that mix.
In the first half of the year (six months to February) BOQ’s net interest margin fell 12 basis points to 1.74 per cent. Competitive pressure on pricing and the adverse impact of swaps on fixed rate home loans were the key factors.
NIM stabilised in the six months to August, rising 1 basis point to 1.75 per cent. Frazis said NIM rose to 1.81 per cent in the fourth quarter.
But as the NIM was recovering, home lending stalled. APRA figures show that BOQ’s mortgage book grew by 0.6 per cent in the three months to August, compared with system growth of 1.5 per cent over the period.
The mortgage book went into reverse in July and August, running off by 20 bps over the two months.
Speaking at BOQ’s results briefing yesterday, Frazis said conditions are favourable for further improvement in the margin in the first half of the current financial year, before moderating in the second half.
He is also pinning his hopes on the migration of customers to the bank’s new cloud-based digital platform, which he said will encourage growth in low-rate transaction account volumes.
As to the mortgage book, he said: “We want steady growth in the balance sheet”.
BOQ made a net profit of A$426 million in the year to August – an increase of 15 per cent over the previous year.
Cash earnings fell 5 per cent to $508 million. Cash earnings were prepared on a pro forma basis, adjusting for the acquisition of ME Bank and the sale of St Andrews Insurance.
Net interest income rose 36.5 per cent to $1.54 billion and net operating income rose 34.2 per cent to $1.68 billion (a 1 per cent increase on a pro forma basis).
Expenses were up 43.7 per cent to $1.06 billion according to the financial report, but were flat at $937 million on a pro forma basis.
According to the briefing notes, the loan impairment expense was $13 million, following a benefit of $29 million in 2020/21. The financial report shows a benefit of $21 million in 2020/21 and a benefit of $1 million 2021/22.
Return on equity was a meagre 8.4 per cent.
The group’s common equity tier 1 capital ratio was 9.57 per cent – a fall of 23 basis points year-on-year.
Credit quality improved through the year. Housing loan arrears (overdue by 90 days or more) fell from 80 bps of the book to 55 bps year-on-year. Commercial loan arrears fell from 93 bps to 61 bps, while asset finance arrears rose from 20 bps to 24 bps.
The value of impaired assets fell from $243 million in the August half last year to $153 million in the latest half.
Fifty-three per cent of home loan customers have a repayment buffer of one year or more. Fixed-rate maturities will peak in the first half of 2024, when