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BOQ Annual Report

BOQ Strategy

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Annual Report 2015

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About BOQ

Our mission to be Australia’s most loved bank

BOQ is one of Australia’s leading challenger banks. We pride ourselves on building long-term customer relationships supported by banking products that genuinely meet our customers’ financial needs. Our strategy is to focus on niche segments where customers value a more intimate banking relationship. We’re on a mission to prove it’s possible to love a bank by being modern, focused, nimble, personal and being loveable. Independent Roy Morgan research shows our customer satisfaction and advocacy scores have soared over the last 3 years, drastically improving compared to our competitors*. We’ve come a long way, but we’re not there just yet – we want to be Australia’s most loved bank. We’ll get there by making it easier for our customers to deal with us, growing our business the right way, finding better ways to do things and enhancing our customer-focused culture.

*Roy Morgan Research, MFI customers aged 14+, 6 month averages, competitors exclude mutual banks. Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld.

Leading the way

We have a committed Executive Team delivering our strategy and an experienced Board of Directors overseeing our financial performance and ensuring strategic delivery continues to add value for our shareholders.

Find out how our Corporate Governance framework helps us manage risk and add value in our Corporate Governance Statement. Further disclosure on how we responsibly manage our business and positively engage with our stakeholders is available on the sustainability section of our website.

Financial results

Profit Results

($) Millions

Statutory Net Profit

$318M
Up 22% since FY14

Cash Earnings

$357M
Up 19% since FY14

Net Interest margin

(%)

Net interest margin

1.97%
Up 15bps since FY14

Chairman
& Managing Director’s Report 2015

We are pleased to report that our strategy is delivering strong, sustainable growth for our business and shareholders.

Over the last 12 months, we have made significant strategic progress towards transforming our business so we can take advantage of future opportunities and respond to any challenges. Our results for FY15 demonstrate we are on the right path.

For the fifth successive half, we achieved a record financial result. Net profit after tax was up 19% to $357 million while statutory profit after tax increased 22% to $318 million.

Our strategy is also driving improved business performance with key metrics such as growth, margins and asset quality showing improvement. Our strong financial performance has enabled the Board to set a final dividend of 38 cents per share, taking full year dividends to 74 cents per share. This means we have delivered a total return to shareholders of 6.3% during the financial year, the highest return of any listed Australian bank during this site.

During the year we refreshed our strategy to focus on niche segments where customers value a more intimate banking relationship. We are delivering this strategy through four execution pillars: ‘Customer in charge; ‘Grow the right way’; ‘There’s always a better way’; and ‘Loved like no other’. Our progress in these areas over FY15 is detailed in this report.

Our culture and success are crucial to the success of our strategy – we strive to be a company that our employees love working for and our customers love dealing with and we are happy to say our employee engagement scores are heading in the right direction.

Not surprisingly, this is also contributing to high levels of customer satisfaction. Independent Roy Morgan research comparing customer satisfaction and advocacy among Australia’s top banks shows our Main Financial Institution Net Promoter Score has increased by 36.7 points over the last 2.5 years. This is by far the biggest improvement in our sector and puts us within striking distance of the top spot*.

BOQ achieved much over the financial year and shareholders should take comfort from the fact that the Bank is extremely well placed for the future.

Our strategy sets the Bank up for success in a market which continues to see significant regulatory and technology change. At a time when there is some uncertainty around the regulatory environment, we continue to maintain high levels of capital so we are well placed whatever global and local regulators decide to do.

Results like these are achieved through a true team performance – from the executive team right the way through to our front line employees who help customers every day. Thank you to everyone at BOQ for their efforts.

In January, we farewelled long-standing Director Steve Crane when he retired after six years on the Board. Steve’s expertise was invaluable and we thank him for his service and wish him the best for the future.

We also thank shareholders for their ongoing support of our company.

Roger Davis

Jon Sutton

Chairman Managing Director & CEO


*Roy Morgan Research, MFI customers aged 14+, 6 month averages, competitors exclude mutual banks. Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld.

Customer in charge

91 branches with individual Facebook pages creating more personal connections with local customers and communities

Customer in charge

We’re improving our customer experience by putting our customers in charge of when, where and how they choose to interact with us.

Over the past year we’ve continued making progress by:

  • Expanding our broker program. We now have 2,500 brokers writing loans for BOQ, double the amount from 12 months ago. Brokers now generate 23% of our home loans, up from 12% a year ago.
  • Opening a second Customer Contact Centre, this one in Queensland. This increases our call centre capacity and provides a dedicated local support unit for brokers on the east coast.
  • Redesigning the branch experience to create a more flexible and engaging environment. New security devices, technology and branch design allow customers to choose between a variety of self-service devices or engaging in more meaningful conversations side-by-side with BOQ people.
  • Introducing social media support into our Customer Contact Centre to ensure faster customer response times across more hours of the day.
  • Beginning a pilot of individual Facebook pages for branches to enable more personal connections with local customers and communities.
  • Launching new brand propositions for BOQ Business and BOQ Finance to connect more meaningfully with target customers.

In the year ahead we’ll redesign more branches, roll out Facebook pages to more branches and move towards 24/7 social media support. We’ll introduce a Virgin Money Australia branded home loan product, upgrade our ATMs and investigate options to upgrade our website platform. Business banking customers will enjoy a broader range of services as we expand our financial markets and international trade finance capabilities.

Find out how BOQ is proving it’s possible to love a bank by being modern

Grow the right way

Face-to-face training with 1,300 employees across 60 locations driving better risk management

Grow the right way

We’re developing a strong and profitable business by making the right decisions about where and how we grow and leveraging our expertise in specific areas where we can add real value.

Over the past year we’ve continued making progress by:

  • Identifying niche industries of focus for business banking including micro to mid-market sized businesses in health and aged care, agriculture, property, hospitality and professional services.
  • Adding $1.6 billion in new lending in the first full year of contribution from BOQ Specialist, which focuses specifically on lending to accounting and medical professionals.
  • Overhauling our retail portfolio management and reporting processes and strengthening our residential mortgage lending practices.
  • Introducing a Group-wide risk appetite framework and embedding it in all business units as part of their strategic and business planning processes.
  • Improving our asset and liability management system giving us a more sophisticated tool to manage our interest rates, liquidity, profitability and forecasting.
  • Improving our liquidity to meet Basel III requirements. We enhanced the composition of our liquid assets, implemented new deposit products, improved the mix of deposit counterparties and lengthened the maturity profile of our wholesale funding.
  • Continuing to renew existing major corporate partners, and introducing new ones, through our insurance arm St Andrew’s.
  • Further strengthening our risk management capabilities. This was recognised at the 2015 Asia-Pacific Banking and Finance Awards with our Chief Risk Officer Peter Deans crowned CRO of the Year for the second year running.
  • Continuing to roll out new franchise agreements to better align branch operations with business and risk objectives.
  • Rolling out a new training program for frontline staff that focuses on enriching customer communications to drive more responsive service and improved compliance.  This program launched with a national roadshow delivering face-to-face training with 1,300 employees across 60 locations.

In the year ahead we’ll continue aligning our business with our robust risk profile through internal education and training modules and by bringing more franchisees onto the new agreement. Our new credit models will be tested under a range of evolving scenarios and we’ll deepen our market and customer insights through better use of data. New governance, risk management and compliance software will be introduced to integrate and manage related information in one system.

Find out how BOQ is proving it’s possible to love a bank by being focused

There’s always a better way

1,800 new portable laptops rolled out improving collaboration and flexibility and helping us service customers anywhere, anytime

There’s always a better way

We’re committed to making our processes simpler, faster and smarter.

Over the past year we’ve continued making progress by:

  • Continuing to digitise our lending. This system will automate processes and remove paperwork, improving the speed of lending decisions, improving productivity and enabling our people to spend more time with customers.
  • Restructuring our IT operations, including signing a new IT services contract with Hewlett Packard.
  • Rolling out new portable laptops to head office employees, branch managers and mobile lenders enabling greater collaboration and flexibility across the network.
  • Developing more robust IT security measures with business partners and suppliers.
  • Introducing a new matrix so we can make credit quality decisions on vehicle finance faster than ever.
  • Introducing new swipe release printers in head office to prevent uncollected print jobs – saving 1.2 million pages per year.
  • Upgrading and consolidating our desktop computer operating systems to improve efficiency and collaboration.
  • Migrating all telecom services to a single provider, securing meaningful cost savings.

In the year ahead we’ll take our first retail applications through our new lending process. Development will start on a small-to-medium business application scorecard to help us provide faster lending decisions for applications that meet certain criteria. We’ll investigate ways to further strengthen employee collaboration including consolidating different email platforms across the Group, upgrading video conferencing and implementing wi-fi across all support centres and branches. Our IT threat detection and response capabilities will continue to evolve to keep pace with technology.

Find out how BOQ is proving it’s possible to love a bank by being nimble

Loved like no other

55 employees participated in the My Mentor program developing the skills of women ready for senior management roles

Loved like no other

Delivering on our brand promise. We’ve made enormous progress over the last 12 months towards our ambitious goal of being Australia’s most loved bank. Independent Roy Morgan research comparing customer satisfaction and advocacy among Australia’s top banks shows our Main Financial Institution Net Promoter Score increased by 36.7 points; by far the biggest improvement in our sector and putting us within striking distance of the top spot*.

Over the past year we’ve continued making progress by:

  • Introducing a new flexible-working policy enabling more staff to work from home, as well as a new policy to pay superannuation for up to 12 months for those on maternity leave. Being able to accommodate a variety of personal circumstances helps us attract and retain the best people.
  • Consolidating our capital city head offices to bring our people together, improving collaboration and driving long-term cost savings.
  • Rolling out free business coaching programs for branches that drive performance, strategy and best practice. We now have seven programs which 102 branches have undertaken. On average these branches have achieved a 9.5% increase in the value of their lending settlements.
  • Introducing a new accreditation induction program for all new employees spanning their first 120 days – this program received a platinum award for ‘Best Learning Program’ at the 2015 LearnX Impact Awards in Sydney.
  • Implementing new performance measures for our leadership team designed to provide a stronger link to long-term performance.

*Roy Morgan Research, MFI customers aged 14+, 6 month averages, competitors exclude mutual banks. Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld.
  • Demonstrating our progress on being loved like no other our employee engagement scores have soared from 42% in 2014 to 67% in 2015, putting us well on track towards our target of being in the top quartile of employee engagement.
  • Continuing our annual Banking on our Kids appeal, raising more than $203,000 for Children’s Hospital Foundations Australia.
  • Supporting the BOQ ESSI Money Challenge which has seen participation rates increase to 440 school classes from 190 school classes when the Challenge started in 2010.
  • Demonstrating we’re really in a class of our own; for the second year running our Business Banking team was named Relationship Bank of the Year at the 2015 AB&F Business Banking Awards. We’ve also spent seven straight years at the top of East and Partners’ business banking customer satisfaction survey.
  • Delivering on our brand promise. We’ve made enormous progress over the last 12 months towards our ambitious goal of being Australia’s most loved bank. Independent Roy Morgan research comparing customer satisfaction and advocacy for Australia’s top 9 banks shows our score increased by 90%; by far the biggest improvement in our sector and putting us within striking distance of the top spot*.

In the year ahead we’ll continue rolling out our branch business coaching programs and staff training to build a more robust sales and service culture. Personalised leadership development programs will be implemented. Workplace health and safety ‘health checks’ will be done for branches and risk and safety leadership training will be rolled out. We’ll also continue to develop our community partnerships to make a positive impact on issues affecting young Australians and give back to the communities in which we operate.

Find out how BOQ is proving it’s possible to love a bank by being personal
Find out how BOQ is proving it’s possible to love a bank by being loveable

Resource Centre

Financial results

Watch the webcast of our 2015 full year results or read related documents

My shareholding

Information on our dividends, financial results, annual reports and annual general meetings and links to our share registry where you can view your balance and transaction history, download past dividend statements and update communication preferences online