BOQ Reports Strong Profit, Delivers on Commitments

Thursday, 15/04/2010

BOQ today announced a record normalised cash net profit after tax of $97.2 million for the first half of 2009/10, an increase of 15% on 1H09. 

BOQ Managing Director David Liddy said the Bank was in a far stronger position than it had been at the start of the GFC and was now focused on delivering on its commitments to the market. 

“We have continued to grow our profits, by 15% to $97.2 million, while maintaining our focus on longer-term value and the commitments made to the market in terms of growth, earnings and cost reduction guidance. 

“In addition, the Bank’s decision to continue lending through the GFC had paid off with lending growth more than two times system.  It’s pleasing to note early signs of success in our SME lending strategy. 

“As previously guided, bad debts increased in 1H10 as we expected they would, however we are now seeing an improved, more stable position. 

“We have delivered on our commitment to improve our margins, increasing our net interest margins by 13 basis points from the first half of 2009 to 1.65%, despite increased funding costs. 

“We have delivered on our commitment to improve our normalised cash cost to income ratio, reducing it by an impressive 9.2% over the past twelve months to 45.1%, with an overall reduction in total normalised cash operating expenses of 6% compared to the first half last year. 

“While this is undoubtedly a significant achievement, we have deliberately created the cost head room to enable us to invest in marketing, brand, technology, and increased compliance and regulatory costs, while still targeting a full year cost to income ratio of 47%, as per guidance. 

“We are delivering on our strategy of reducing capital intensity and increasing margins through complementary acquisitions, with the recent agreement to purchase St Andrew’s Insurance (Australia) Pty Ltd and St Andrew’s Life Insurance Pty Ltd and our ongoing review of merger and acquisition opportunities as they arise. 

“As previously announced, we are in exclusive discussions with CIT Group Australia and New Zealand regarding the purchase of their vendor finance business. 

“And through these potential acquisitions we will deliver on our commitment to boost our non-interest income sources, adding to the long-term sustainability of our business and helping us remain a viable competitor in the much diminished Australian banking landscape.”

Prudent capital management

BOQ’s Board announced a fully franked interim ordinary dividend of 26 cents per share, matching the dividend provided in the first half of 2009. 

“Even as the markets show signs of stability, we continue to believe that organic capital generation is fundamental and have maintained a flat dividend for the half,” said Mr Liddy. 

“We adopted a prudent capital management approach during the GFC and reduced our dividend policy consistent with nearly all other financial institutions, and we believe maintaining a conservative dividend policy remains appropriate. 

“We have made significant investments behind Project Pathways which we believe has delivered a sustainable competitive advantage and a lower cost structure going forward.  

“This will continue to improve our organic capital generation as we continue to create greater economies of scale. 

“We are also committed to solving the capital intensity of the business and have communicated our strategy to increase our presence in the SME space and improve our non interest income earning capability.” 

Funding and liquidity

“We have established the ability to fund our business without any disruption by focusing on diverse sources of funding and growing retail deposits. 

“During the GFC we established a substantial liquidity buffer and we are now less reliant on the retail markets during periods of dysfunctional pricing. 

“The capital issue during this half, while constraining our Earnings Per Share performance, has provided us with the platform to continue to drive ahead our strategy of complementary acquisitions." 

OMB Model

“Our Owner-Managed Branch Model has performed creditably throughout the GFC and has demonstrated its resilience in difficult times. 

“This performance, and the improvements made throughout the GFC, has given us the confidence to re-establish our organic branch expansion strategy.  We will be expanding our footprint over the next couple of years and will provide more detail around this expansion strategy at our full year results in October.” 

Bank of Queensland 2010 Interim Result Snapshot 

  1H09 2H09 1H10 Change on 1H09 (pcp)*
Normalised Cash Profit After Tax $84.2m $103.2m $97.2m 15%
Retail Deposits $16.1b $16.2b $16.9b 5%
Loan Approvals $6.4b $7.2b $6.1b (5)%
Loans Under Management:
(before collective provisions)
$27.5b $28.9b $30.3b 10%
Housing $19.4b $20.6b $21.6b 11%
Business $7.7b $7.9b $8.4b 9%
Consumer $0.4b $0.4b $0.3b (22)%
Assets under Management $33.5b $34.5b $36.1b 8%
Normalised Cash Cost to Income Ratio 54.3% 45.8% 45.1% 9.2%
Normalised Diluted Cash Earnings Per Share 45.9c 52.5c 41.8c (9)%
Dividend Per Share 26c 26c 26c -

*pcp = prior corresponding period

• Net Profit After Tax up 15% pcp: Normalised Cash Net Profit After Tax of $97.2 million for the first half of the 2009/10 financial year, an increase of 15% on the prior corresponding period (pcp).
 Continued above system asset growth: The Bank’s decision to continue lending throughout the GFC has contributed to continued above system asset growth.  Bad debts increased in 1H10, as flagged in FY09, however as our focus remains on housing and SME lending we do not expect to see any material change in large exposure commitments over time.
• Income mix diversification: As previously communicated, non-interest income remains a challenge, particularly following the introduction of direct charging late in FY09.  We are continuing to address this as a matter of priority and our strategy of complementary bolt-on acquisitions will help us improve the mix.
• Net Interest Margin: Our reported Net Interest Margin (NIM) improved by 13bps from the first half of 2009, which was consistent with our guidance, to finish the period at 1.65%.
• Diluted Cash Earnings per Share: The excess equity capital the Bank is holding is diluting Earnings per Share, but provides the Bank with a platform for continued growth.
• Funding:  Tier 1 capital increased to 9.2%, which is above APRA and internal benchmarks and provides a platform to support future growth through both organic and bolt-on acquisitions