- Normalised cash NPAT up 29% to $84.2 million
- Lending growth up 13% (1.6 x system)
- Retail deposit growth up 25%
- Successful term and RMBS raising
- $50 million in expected annual cost savings identified through Project Pathways
Bank of Queensland today announced a normalised cash profit after tax of $84.2 million for the first half of the 08/09 financial year, an increase of 29% on the prior corresponding period.
BOQ Managing Director David Liddy said the Bank continued to grow above system in both lending and deposits.
“We have maintained sound asset quality in a challenging economic environment and with, in my view, the most effective retail banking distribution platform in Australia, we are well placed to continue to grow,” he said.
“This result, particularly our growth in deposits, demonstrates the distribution power of our unique owner-managed branch model and our ability to re-focus that model according to the business need, which has moved from loan growth to deposit gathering.
“Our renewed focus on retail deposit funding has intensified, with our deposit pricing strategy driving significant growth in our liquidity levels. Retail deposits now fund 58% of our loans under management, reducing our reliance on wholesale markets and RMBS.
“We have started to see a re-opening of the securitisation markets and have recently priced a $712 million issue anchored by the Australian Office of Financial Management.”
Mr Liddy said the Bank’s normalised cash cost-to-income ratio improved by 5% to 54% from the prior corresponding period (pcp).
“The Bank’s Project Pathways, which we announced last year would identify ways of accelerating our growth, has been successful in identifying $50 million in expected annual cost savings which we have already begun to implement,” he said. “This is a major step change in our efficiency and positions us well for the future.”
Mr Liddy said the Bank was well placed to continue to grow in a challenging domestic and global economic environment.
“Our impairment charges are lower than our peer group, which reflects our focus on well-secured housing and SME lending, and limited commercial exposures greater than $10 million,” he said.
“As flagged at our FY08 results last October and again in February, increased funding costs continue to compress our net interest margins (NIM). However, we expect to recover some of this margin in the 2H09 with lower cost of funds and re-pricing strategies. Signs of this recovery have already become evident in recent weeks.
“We expect to see an improvement in NIM in the second half, as we use excess liquidity to adjust pricing on our at-call deposit accounts.”
“Our liquidity is well-positioned and our capital base is strong, with the Bank’s Tier 1 capital improving by 0.8% to 8.0% after the January SPP and share placement.”
Bank of Queensland’s Board announced a fully franked interim ordinary dividend of 26 cents per share, a decrease of 9 cents or 26% (pcp).
Mr Liddy said consistent with the wider banking market it was now necessary and prudent for the Bank to adopt a more conservative dividend policy in order to preserve capital strength in the current challenging market conditions.
Mr Liddy said the Bank was making good headway with Project Pathways and had already made significant progress with each of the three workstreams: mergers and acquisitions / strategic partners, efficiency and a portfolio optimisation program.
“We commenced the M&A / strategic partners initiative in early 2009 and continue to talk to a range of people in the market about various ideas and concepts,” he said. "We have put processes in place to examine opportunities if they arise and to move quickly to capitalise on them.
“As part of the efficiency workstream, we have recently completed an entire organisational review and restructure which has identified approximately $50 million in expected cost savings during the phase 1 programme, with further savings expected in phase two.
“We have merged our Retail Financial Services and Business Financial Services divisions creating one Banking group, to drive cost efficiencies and to support our service delivery strategy going forward in Housing and SME lending.
“We have also taken action to rationalise our under-performing branches in NSW, where the performance was below both the Bank’s and the owner-managers’ expectations.
“A combination of factors including the sluggish NSW economy and the make-up of the branch management contributed to the under-performance of some NSW branches. We are consolidating our 56 existing NSW branches down to a core of approximately 45.
“We will also focus on strengthening the continuing OMBs and converting corporate branches to OMBs in Queensland and WA. The unique OMB model provides exceptional growth over the corporate model.
“Our portfolio optimisation program is also well progressed and we have undertaken a diagnostic of all existing channels and products, covering revenues, productivity, margins, cost pools, risks, outlook, customer service, capability, strategic and brand fit.”
Mr Liddy said the Bank’s asset quality remained strong with arrears increasing marginally on the housing book, but with decreases reported for both the leasing and business segments.
“We have seen increases in our bad debts in the first half, however these levels remain below those of our competitors due to our lack of exposure to large corporate and property financing,” Mr Liddy said. “We have no significant single-name exposures and do not lend to the large corporate/institutional end of the market.”
Funding and liquidity
The Bank’s renewed focus on retail deposit funding intensified in the half, with the deposit pricing strategy driving significant growth in liquidity levels.
“Retail deposits now fund 58% of our loans under management, reducing our reliance on wholesale markets and enabling us to continue to grow despite the current economic climate,” Mr Liddy said. “We have recently started to see some re-opening of the securitisation markets led by the AOFM support in which they anchored a recent $712 million issue.”
Bank of Queensland 2009 Interim Result Snapshot
Change on 1H08 (pcp)
Normalised Cash Net Profit After Tax
Loans Under Management (before collective provisions)
Assets Under Management
Normalised Cash Cost to Income Ratio
Normalised Diluted Cash Earnings Per Share
Dividend per share
Net Profit After Tax up 29% pcp: Normalised Cash Net Profit After Tax of $84.2 million for the first half of the 2008/09 financial year, an increase of 29% on the prior corresponding period (pcp).
Asset quality still strong: Our focus on well-secured housing and SME lending is reflected in our strong asset quality. Unlike our peer group, we have no impaired single name exposures of significance.
Expense discipline: We continue to take a controlled approach to expense growth, with the Project Pathways efficiency initiatives targeting significantly lower operating costs going forward.
Dividend policy: Given the volatile market conditions and increased cost of equity, it has been necessary and prudent for the Bank to adopt a more conservative dividend policy in order to ensure retention of capital to enable its continued growth.
Interest Margin: Net interest margin down by 10 basis points in the half reflecting increased funding costs and an increase in our liquidity levels. We expect to see a similar trend to FY08, with NIM improvement in the second half.
Funding: The reduced availability of wholesale funding increased reliance on retail deposits. Retail deposits are funding 169% of year to date LUM growth and in the last 12 months retail and wholesale sources have funded $1.4b in additional liquidity.
Efficiency review: We have made significant progress with the efficiency review, achieving a step change annualised $50 million reduction in our cost base and having completed an internal restructure and amalgamated our business and retail divisions to streamline our delivery and concentrate our focus on the SME and housing markets. We are also consolidating our NSW branches down to a core of approximately 45 which we believe will provide us with a platform for a future healthy network of branches.
Portfolio Optimisation Program: The product and channel diagnostic are complete, and our priorities include growing SME market share, improving cross sell capability and enhancing our product suite.
M&A / Strategic Partner initiative: The opportunity to bridge the ‘void’ in the banking market left behind by consolidation of SGB and BWA is compelling – there is a strong case for a real alternative to the majors given the decline in competition. We continue to talk to a range of people in the market about various ideas and concepts, and we have put processes in place to examine opportunities if they arise and to move quickly to capitalise on them.
 Growth figures refer to system growth on prior corresponding period