Bank of Queensland achieves record profit as turnaround takes effect

Bank of Queensland today announced a record net profit after tax of $28.7 million for the year ended 31 August 2002, up 19% on the previous year.


This excellent result was achieved despite the total expenditure of $6.3 million on the defence and settlement of the Metyor Inc litigation relating to the provision of ATM services.


As a major endorsement of the Bank's ongoing Performance Enhancement Program focusing on efficiency, and the early effects of our $480 million 10-year outsourcing to EDS, costs were flat year-on-year at $124 million, despite record growth in lending volumes.


The Directors declared a final dividend of 15 cents per share fully franked, increasing the total dividend for the year to 29 cents per share fully franked.


Chairman Neil Roberts said: "By any standards, 2002 was a year in which Bank of Queensland not only set new strategic directions and planned for restructure, but also achieved comprehensive organisational change.


"Notwithstanding pressure on margins resulting from interest rate cuts early in the year, the Bank posted a 19% increase in after tax profit - largely the result of remarkable lending growth and tight control of expenses, without compromising asset quality," he said. "We are particularly pleased with the earnings per share growth of 18.7%.


"Control of expenses has at last resulted in a significant reduction in the cost-to-income ratio which we expect will continue to improve.


"All in all the Bank's financial and operational accomplishments in the 12 months to August 31, the first full year under Managing Director David Liddy's leadership, are exceptional. The benefits flowing from these improvements will continue on well past the period in which they were implemented."


Underlying profit before bad debts and income tax lifted 27% to $49.8 million on the back of a 14% improvement in net non-interest income and a 2% lift in net interest income.


The tightening of fee collection rates as well as growth in loans written underpinned the significant increase in net non-interest income to $64.7 million.


Strong growth in lending approvals and assets
Lending approvals rose 31 % over the same period last year to $3.7 billion, assisted by continued buoyancy in the housing market, making BOQ one of Australia's fastest growing banks over the period.


Loans under management increased 27 % to $5.7 billion, including $1.3 billion in securitised loans and $4.4 billion of on-balance sheet loans. Total assets under management were $6.6 billion at year's end, with $5.3 billion of this on the balance sheet compared to $4.2 billion at the close of the 2001 financial year.


Although the Bank's 10-year outsourcing agreement with EDS in March only took effect toward the end of the financial year, benefits from it had already flowed through to the bottom-line by year's end.


Under the agreement, which in breadth of scope was the largest undertaken in Australia to date, BOQ outsourced its information technology infrastructure and back-office processes in a move to improve scalability and efficiency, reduce costs and support growth.


It is estimated the outsourcing initiative will produce savings of approximately $100 million of prospective costs over the life of the contract.


Cost-to-income ratio
Cost containment and revenue enhancement drove the Bank's cost-to-income ratio down from 76% to 71.3%. Excluding the impact of significant items for both years the cost to income ratio is reduced from 72.8 % last year to 67.7%. This puts BOQ firmly on track to achieve its target 64 % for 2004.


Quality of portfolio maintained
Bad debts written off and movements in specific provisions were reduced by $3 million on last year to $4.5 million, reflecting the quality of the loan portfolio which is heavily weighted toward secured home loans.

General provisions lifted $4.8 million in light of the 24% growth achieved in the Bank's on-balance sheet lending portfolio.


BOQ remains conservative in its provisions, with the general provision for doubtful debts as a percentage of risk-weighted assets on an after tax basis steady at 0.52%, which is above Australian Prudential Regulation Authority guidelines of 0.50%.


Goals set for 2003
Mr Liddy said the outstanding financial results were an early indication of the significant internal transformation realised at BOQ over the past year.


"We have rebuilt the engine rooms of the Bank into an organisation focused on productivity, performance and efficiency. Our work in laying the foundations early in the financial year has already begun to flow through to the bottom line but we expect the full positive impact not to be felt until next year," he said.


"This record result for the 2002 financial year positions Bank of Queensland to continue reaping the rewards of recent and ongoing Bank-wide efforts to contain costs and lift revenue.


"Our goals for the current financial year are for our strong asset growth and double digit EPS growth to continue, to cut our cost-to-income ratio to 68 %, lift ROE to 14 % and expand our branch network to 120 branches."


"We are already beginning the next round of the Performance Enhancement Program. By year end finalised programs were in place to deliver $6 million in annual revenue enhancements and $10 million in annual cost savings from this current year and in to the future."


Operational achievements for 2002

  • Outsourcing of IT infrastructure and back-office processes under a 10-year $480 million deal with estimated prospective savings of $100 million resulting

  • Successful launch of new internet banking and phone banking

  • Branch openings 7 opened, another 11 in process of being opened, 120 by August 2003, on track for 34 new branches by August 2004

  • Launch of new BOQ corporate identity in June 2002 to underpin targeted growth in marketshare

  • Laying of strategic five-point plan for 2003 with taskforces established, each led by a GM to set the next phase of our progress in stone

  • Strategic alliances with ABN AMRO Morgans and Royal Sun Alliance filled immediate need to provide wealth management and insurance products to customers

  • Overhaul of previously transaction-focused private agencies into an owner-managed branch network built around value enhancement

Financial achievements for 2002

  • Bank of Queensland recognised as one of Australia's fastest growing banks in year to August 2002 following a 31% jump in sales, to a record $3.7 billion

  • Enhanced efficiencies and sales growth push operating profit after tax and significant item up 19% to $28.7 million

  • EPS growth (fully diluted) of 18.7%

  • While revenues increased substantially, total expenses remained flat at $124 million

  • Fully franked dividend of 15 cents declared, lifting total year's pay-out to shareholders to 29 cents per share fully franked

  • $17.7 million raised from the retail market under a share purchase plan in May 2002

  • Assets under management climb to 27% to $6.6 billion by year end with housing assets up 28%, business assets recording growth of 25% and consumer loans 9% higher than in 2001

  • Successful implementation of Productivity Enhancement Program cuts bank's cost-to-income ratio from 76.0% to 71.3%. Excluding the impact of significant items it was down from 72.8% to 67.7%.



Further information:


Deidre Stark
Head of Corporate Affairs
Bank of Queensland
Ph:07 3212 3522
Mob: 0439 730 547
Fax: 07 3212 3409