BOQ chief executive Patrick Allaway
Bank of Queensland is pinning its hopes for a revival in its home lending business on the development of its subsidiary ME Bank as a prototype digital brand operating at low cost and high efficiency.
BOQ’s mortgage portfolio contracted by $400 million during the six months to February – a 2 per cent decline over the previous corresponding period to A$57.2 billion.
The BOQ home loan brand ran off by $553 million and Virgin Money Australia by $569 million. But ME Bank’s home loan portfolio grew by $715 million.
BOQ has a cost-to-income ratio of 65.9 per cent and is keen to get its costs down. It is digitising a number of parts of its operations. ME is only one part of that transformation but it is an important part.
But BOQ may be struggling to keep all its balls in the air. ME’s customer numbers are way down.
When BOQ announced its acquisition of ME Bank in February 2021, it said the deal would increase its customer numbers from around 900,000 to around 1.45 million – putting ME’s customer numbers at 550,000.
According to yesterday’s half-year financial report, ME accounts for around 340,000 of total customer numbers of 1.4 million. That is a 38 per cent fall in ME’s customer numbers in three years.
The brand that BOQ is focusing on “as the first proof point of an end-to-end scalable low-cost to serve national digital brand” is not resonating with customers.
BOQ reported a net profit of $151 million for the six months February, a big turnaround from a profit of only $4 million in the previous corresponding period. That $4 million result included a $200 million goodwill impairment and a $42 million provision for a remedial action plan.
On a cash basis, earnings fell 33 per cent from $256 million in the February 2023 half to $172 million in the latest half.
Total income of $795 million was down 12 per cent year-on-year, driven by a declining net interest margin. Net interest income fell 13 per cent to $725 million.
NIM was 1.55 per cent – down from 1.58 per cent in the August half and 1.79 per cent in the February half last year.
The cost-to-income ratio rose from 54.9 per cent to 65.9 per cent year-on-year and the return on equity fell from 8.4 per cent to 5.8 per cent.
The loan impairment expense was $15 million – down from $34 million in the previous corresponding period.
In addition to the contraction of the mortgage book, BOQ’s consumer finance book fell 13 per cent year-on-year to $260 million and its commercial loan book was flat at $11.2 billion. Asset finance receivables of $6.9 billion were up 2 per cent year-on-year but down 1 per cent on the previous half.
The bank said its lending results reflected “prioritisation of return over volume growth in a competitive market”.
BOQ chief executive Patrick Allaway said the bank’s strategy is to simplify and increasingly digitise its operations, and by doing so lower costs and improve the customer experience. It has a number of projects which it aims to get finished by 2025/26, including establishing a shared service operating model across the group, decommissioning up to 50 per cent of its technology assets, putting the bulk of its IT in the cloud and automating processes.
By that stage it expects to have its home loan processing largely automated and customers interacting on digital platforms that generate higher net promoter scores.