BOQ strategy gains traction with record profit

Bank of Queensland today announced Net Profit After Tax (NPAT) of $35.9 million for the first half of 2005, an increase of 28% on the same period last year driven by the performance of its expanding branch network and business banking.


Importantly, BOQ continued on track with its interstate branch expansion, arrested margin decline and is on target to totally replace, by August, lending growth from the mortgage broker channel, which it withdrew from in June last year.


Managing Director David Liddy said Bank of Queensland had steadied and then grown interest margins from 2.18% in the second half of last year to 2.25% in the first half of 2005 and had excellent early results from its interstate branches.


“Our first five interstate branches have average balance sheet footings of $28 million after only six months. Importantly, deposit growth has been strong at more than 45 per cent of lending settlements, an excellent result for such an early stage in the development of the branches,” Mr Liddy said.


“The success of the branch roll-out, both in Queensland and interstate, underlines the integrity of the Owner-Managed Branch model and how it flows through to strong results for both customers and shareholders.


“It is extremely rare to have a model which attracts experienced, entrepreneurial branch managers, ensures a heightened level of customer service and guarantees better return to the shareholder through improved sales performance and a faster market penetration.


“While we have never taken our Queensland successes for granted, it is encouraging to see how well our first interstate branches are going in both lending and deposit growth,” he said.


Mr Liddy said that, as of today, Bank of Queensland had, over the last three years:

  • Consolidated in Queensland with 138 branches and 11 business banking centres;
  • Launched interstate expansion with 22 new branches across NSW, ACT and Victoria;
  • Grown the branch network to 160 branches from 93 in 2001.
  • Boosted business banking to 40 per cent of total loans under management;
  • Completed the implementation of a $40 million new core banking system;
  • Outsourced IT and back office processes, replaced and modernised product range;
  • Conducted a refit and modernisation of every branch;
  • Acquired strategically positioned equipment finance and ATM companies to underpin growth and provide customer reach, and;
  • Increased the ATM network from 120 to more than 2200 nationally.


Mr Liddy said the Bank had undertaken this massive transformation with one key goal.  “It is a growth strategy. It has always been a growth strategy but it doesn’t happen overnight.


We now have the platform in place and the tools to compete while moving into new markets and using our franchised-based, service-focused branch model together with our business banking platform as a major attraction for new customers,” he said.


“We have an advantage over many of our competitors in that we have a great deal of organic expansion ahead of us. When we talk about EPS growth we are talking about growing our business while improving our efficiencies,” Mr Liddy said.


Bank of Queensland also announced a reaffirmation today of its key commitments for the 2005 full year, announced at last year’s AGM, which were:

  • Lending portfolio growth of 1.5 times system;
  • EPS growth of 10-12 per cent;
  • Cost-to-income of 63 cents in the dollar;
  • 100 interstate branches by August 2006.


Bank of Queensland Chairman Neil Roberts said the record profit proved the bank’s long term strategy, developed and announced more than three years ago, was returning value to shareholders.


“Bank of Queensland said what it was going to do, and has done it, and this interim result is gratifying when so much has had to be achieved over the last six months,” Mr Roberts said.


“Bank of Queensland has come through a massive transformation with flying colours.


“This profit is expected to flow through to double digit cash earnings per share growth for the full year. We remain extremely confident that our strategies are correct and that we have the capability to execute them,” Mr Roberts said.


Mr Liddy said the bank had been impressed by the quality and quantity of bankers who had come forward to be a part of the interstate expansion.


“Bank of Queensland is well on target to meet its goal of 100 interstate branches by August 2006. This will bring our total branch network to about 240 along the eastern seaboard in 18 months’ time,” he said.


“Importantly, we are continuing our fast branch roll-out and attracting a great many potential owner-managers without compromising the exceptional quality of those branch managers.”


Mr Liddy said Bank of Queensland’s agreements with Vero and St Andrews for a suite of insurance products sold through the branches had proved very successful.


“Bank of Queensland is an excellent distributor of financial services products and we are only getting better and more sales-focused as we expand,” Mr Liddy said. “While other banks have largely outsourced their home lending sales to mortgage brokers, Bank of Queensland has proved that it can continue to compete through its own strong, customer service-focused branch and business banking network.”


Mr Liddy said teething problems due to the replacement of the Bank’s computer system had caused disruption for both staff and customers over the last half of 2004FY, but that those problems were now rectified.


“We now have a strong, competitive presence in our home state, underpinned by a state-of-the-art bank computer system, strong ATM network, growing business banking presence, excellent SME market penetration, market-leading products and high customer satisfaction.


The future of Bank of Queensland looks very strong,” Mr Liddy said. “The achievement of growing Bank of Queensland’s infrastructure and foundations while also dramatically growing profit should not be underestimated,” he said.


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  • Net Profit After Tax up 28% pcp: NPAT of $35.9 million for the first half continues strong growth in profit over the last three years.
  • Interest Margin back on track: BOQ, through product realignment, strong retail deposit growth and the withdrawal from the mortgage broker market has reasserted growth in its interest margin in the last six months, with it increasing from 2.18% in 2H04 to 2.25% in 1H05.
  • Asset quality still strong: Total bad debt expense has fallen from $8.6 million in the pcp to $5.7 million in the half, a fall of 34%. The general provision for doubtful debts as a percentage of risk-weighted assets on an after tax basis was maintained at 0.5%, and impaired assets as a percentage of average total assets remained low at 0.07%
  • ATM network expanded: 2111 ATM Solutions machines across Australia, of which 1252 are BOQ branded, and another 158 Bank of Queensland branch-based machines.
  • New, more competitive products: BOQ now has a five-star-rated Cash Management Account, and new Term Deposit and business banking accounts, all supported by its new core computer system.
  • Single customer view: BOQ’s new computer system gives it state-of-the-art “single customer view” allowing its employees to give even better service.
  • 16 new branches opened in half: BOQ opened 15 new interstate and 1 new Queensland branch in the half, bringing the total to 20 interstate and 137 Qld branches at the end of 1H05. BOQ has 22 interstate branches and 160 branches overall as of today, April 7, 2005 and is on target to hit 100 interstate branches by August 2006. First half branch opening numbers are always lower than second half due to the Christmas-New Year break.
  • BOQ sells first Corporate Branch to franchisee: Bank of Queensland has converted its first Queensland corporate branch to an owner-managed branch in Aitkenvale, Townsville. All others OMBs to date have been new branch openings. BOQ has an ongoing policy to sell corporate branches where it fits with the Bank’s strategic imperatives.