Bank of Queensland Managing Director David Liddy has announced the Bank would withdraw from the mortgage broker market.
Bank of Queensland has decided that, from June this year, it will no longer utilise mortgage brokers for the distribution and sale of its mortgage products, Mr Liddy said.
This is a strategic decision that we have been working towards for several months, and follows our considered decision two years ago to reduce our dependence on mortgage brokers, he said.
Approximately 22 per cent of Bank of Queensland's new home loans were being sold through mortgage brokers in the last half, down from more than 40 per cent in previous years.
Any short-term reduction in mortgage sales growth due to our decision to withdraw from the mortgage broker market will be more than offset on our bottom line through improved sales through our own expanded branch network and a reduction in distribution expenses. The decision will also provide for a more efficient use of our capital, Mr Liddy said.
Mr Liddy confirmed the Bank's forecast of double-digit cash EPS growth of between 10 and 12 per cent for the 2004 financial year, and said the decision to withdraw from the mortgage broker market would improve profitability for the Bank in 2005 and beyond.
Bank of Queensland is committed to continued growth substantially above system in both housing and business banking. This decision is about improving the profitability of that growth, he said.
We believe that our own expanding branch network is the most efficient, service-oriented, face-to-face retail network for the distribution of our home loans.
We have also deliberately diversified our asset mix with a greater focus on small-to-medium-sized businesses over the past 12 months, including the purchase of the $1 billion UFJ Finance Australia equipment finance business. Bank of Queensland now has 40 per cent of its loans on balance sheet coming from commercial and business loans.
Mortgage brokers have performed an important role in returning face-to-face service to the home lending market in Australia over the last few years. However, while other banks continue to benefit from that relationship, it has become increasingly apparent that, at Bank of Queensland, we are different.
Bank of Queensland's expanding person2person™ branch network is based on face-to-face, customer-focused service delivery, and we believe it is the best channel for our home lending business going forward, Mr Liddy said.
Bank of Queensland announced in its interim results last month that home lending approvals had increased by 75 per cent in the first half of 2004 compared to the same period last year. Business banking lending approvals grew by 107 per cent over the same period.
Mr Liddy said the home lending market had become increasingly commoditised and that the only key differentials for customers were product choice, the right price and - the key - the right service.
At Bank of Queensland we believe we have the culture and service delivery to provide customers with the very best advice when it comes to choosing a home loan, he said.
Bank of Queensland has announced that it will open 100 branches in New South Wales and Victoria by August 2006, complementing its existing Queensland branch network of 133.
We have grown our Queensland branch network by 40 branches in just over two years, and plan on increasing the size of the network by more than 100 branches over the next few years, Mr Liddy said.
Our focus is on ensuring we provide exceptional customer service through our own channels, rather than relying on third-party sales people.
It must be remembered that we have grown at effectively double system growth over the last two years. In February our Queensland market share for new home loans was 16 per cent according to ABS figures, ranking us third in the State.
Our own branch network is delivering the growth for Bank of Queensland. We have substantially grown our customer base in Queensland. Our focus must now be on achieving similar results through our new and expanding interstate branch network, he said.
We are different from the major banks, which have a mature branch network and so achieve productivity gains through the broker channel. In our case, the broker-originated loans provide too low a yield to pursue as we move forward. In effect, we are growing sufficiently fast organically without the need for mortgage broker-generated loans.
Mr Liddy said the Bank would continue to foster its strong relationships with brokers in other areas, such as equipment finance.
I wish to stress that this is no criticism of the mortgage broking industry. It is about what is best for Bank of Queensland, its customers and its shareholders, as we continue to grow and expand, he said.
This is an extremely positive move for the Bank and will have a positive impact on the Bank's profitability as we continue to move forward.