BOQ Reports Interim Profit of $57.6 Million

Thursday, 14/04/2011 

Result summary:

  • Normalised cash NPAT down 41% to $57.6m, driven by increasing bad debts
  • Strong improvement in underlying profit - up 14%
  • Loan growth 1.8 times system and retail deposit growth 1.3 times system
  • Acquisitions continue to deliver better than expected
  • Net Interest Margin improved 10bps on 2H10
  • Cost-to-income ratio (normalised cash) maintained at 45.1% despite ongoing investment 

BOQ today announced a headline normalised cash net profit after tax of $57.6 million for the first half of FY2011, in line with guidance provided to the market earlier this year. 

In announcing the result, BOQ Managing Director David Liddy said the first half of FY2011 had been adversely affected by a significant increase in bad debts, in line with previous market guidance. 

“I am disappointed with our bad debt experience and have dedicated significant resources in managing this area. 

“On a more positive note, we have been closely managing the integration of the National Finance and Insurance businesses and I’m pleased to report that both are performing well and have been successful additions to the core Banking business.” 

“Over the past six months, and in the face of significant natural disasters, the Bank has continued to drive growth through our Owner-Managed Branch network, which is a huge accomplishment,” said Mr Liddy.  “Over the last year we have grown deposits and lending well ahead of the system. 

“At the same time we have managed to keep our cost-to-income ratio at 45.1%, which is a significant achievement given we have continued to invest in acquisitions, brand, new products, technology and compliance and regulatory initiatives.” 

Bad debts and natural disasters
The Bank’s bad debts have continued to grow, as per guidance earlier this year, with underlying bad debts increasing to $134.4m. 

“We have seen an increase in underlying bad debts driven by impairment exposures and, to ensure transparency, we have tried to specifically book weather impacted exposures, where we could identify them.  On the positive side, we are seeing an improvement in trends across our Equipment Finance portfolio.” 

Mr Liddy said the Bank was already seeing positive signs following the devastating floods and cyclones of early 2011, saying “We are seeing early signs of "normal" business activity with settlements restored to pre-flood levels within two months.  We have not changed our flood-related provisioning since the February market update and, as the majority of our book is well secured housing and SME lending, we are comfortable there will be no further provisioning required in this regard.” 

“We have more than 900 customers who were affected by both the floods and Cyclone Yasi who we have helped with hardship provisions and we will continue to help customers in need.” 

 “We have successfully integrated the Vendor Finance business with our Equipment Finance and Debtor Finance businesses to form BOQ National Finance.  The rebuild of the IT environment was completed on target and on budget, and we have put in place an experienced management team to launch our new motor vehicle finance initiative.  In terms of retail, new business through three key vendors is up 27% year on year. 

“The relocation of the St Andrew’s business is complete with four offices relocated and systems infrastructure transitioned without interruption to operations.  In addition, we have locked in all major corporate partners to medium to long term distribution agreements, while securing an additional corporate partner in Macquarie Life. 

“Over half the acquisition cost of the St Andrew’s business has already been repaid via dividend payments and both businesses are performing ahead of original forecasts; for example, Return on Equity (ROE) for the two acquisitions is circa 30%, versus our forecast of 25%.  

“We are now bedding down these future growth businesses and will continue our strategy of acquiring in high margin, low capital intensity businesses.” 

Capital and liquidity
In releasing the result, BOQ Managing Director David Liddy said the strong deposit growth demonstrated in the first half has created excess liquidity, which created opportunities for the Bank. “Our Tier 1 and total capital levels remain in excess of APRA and internal benchmarks and we continue to hold a conservative liquidity buffer well over the 12% regulatory minimum; we are ideally positioned to take advantage of any future opportunities in line with our strategy.” 

OMB network
“The OMB model continues to be at the core of the Bank’s distribution strategy.  We are seeing improvements in the revenue profile and quality, demonstrated through our continuing lower reliance on up front commissions and more growth funded by deposits.” 

Mr Liddy announced a half-year dividend of 26 cents, saying “Despite a challenging first half, the Board decided to maintain a dividend in line with FY10, due to our strong capital levels and the non-recurring nature of this result.”   

The following dates apply to this dividend:

  • Ex-dividend date - 3 May 2011
  • Record date - 9 May 2011
  • Payment date - 25 May 2011 

BOQ 2011 Interim Result Snapshot





Change on 1H10

Normalised Cash Profit After Tax





Retail Deposits





Loan Approvals





Loans Under Management
(before collective provisions):




















Assets Under Management





Normalised Cash Cost to Income Ratio





Normalised Basic Cash Earnings Per Share (EPS)





Normalised Diluted Cash EPS





Dividend per share






  • NPAT: Normalised cash NPAT down 41% to $57.6m.
  • Underlying profit up 14% pcp: Underlying improvement in normalised cash profit after excluding bad debt loss one-offs and weather related provisions. 
  • Continued above system asset growth: The Bank has continued to outperform system in both lending and deposit growth.  
  • Capital: Tier 1 and total capital levels remain strong with Tier 1 at 8.7% and overall 11.7%.
  • Cost-to-income: Strict expense disciplines have assisted the Bank in maintaining a cost-to-income ratio of 45.1%.
  • Net Interest Margin: NIM improved 10bps on 2H10.
  • Acquisitions: Revenue from both St Andrew’s and CIT is exceeding original forecasts.
  • National Finance: The vendor finance business has been successfully integrated with our existing equipment finance and debtor finance businesses, and the new division is already performing ahead of expectations, with retail new business on 3 key vendors up 27% year on year.
  • Insurance business: The payback period for the St Andrew’s acquisition is expected ahead of forecast in ~18 months.