BOQ Reports Full Year Cash Net Profit After Tax of $176.6m

Thursday, 13/10/2011

Result summary:

• Statutory net profit down 13% to $158.7m
• Normalised cash net profit after tax (NPAT) down 10% year on year to $176.6m, meeting market guidance
• Strong improvement in underlying profit - up 18%
• Loan growth 1.4 times system and retail deposit growth 1.5 times system
• Expense disciplines continue to improve, with cost-to-income ratio improving 1.3% to 44.5%
• Increased bad debts, but investments in collections and increased provisions providing adequate cover for future losses
• Increased funding costs impacting Net Interest Margin (NIM) during second half, but full year NIM increased by 5 basis points (bps)
• Acquisition integration complete and solving capital intensity
• Capital and liquidity levels remain strong 

BOQ today announced a headline normalised cash net profit after tax of $176.6 million for the FY2011 full year, in line with guidance provided to the market in February this year.  

In announcing the result, BOQ Acting CEO Ram Kangatharan said while the Bank’s full year performance had been adversely affected by a significant increase in bad debts, as flagged earlier this year, the underlying performance of the business improved significantly. 

“While our cash NPAT and statutory NPAT are down, our underlying profit has increased by 18% year on year, with a 7.6% increase in the second half driven by acquisitions and loan growth, reflecting the strength of our underlying business. 

“In addition, we have invested in our collection processes to address the bad debt performance and we anticipate these resources will improve our arrears performance in early FY2012.  In fact, we have seen significant improvement in our Equipment Finance portfolio arrears. 

“The integration of our Insurance and Finance businesses continues to be a success story for the Bank, with both businesses performing above expectations and contributing to BOQ’s underlying profit growth. 

“Our Owner-Managed Branch network continues to drive growth for our business, with both lending and deposit growth exceeding that of our peers.  The resilience of our OMB network continues to grow with a greater emphasis on trail annuity type incomes. 

“BOQ’s cost-to-income ratio has further improved to less than 45%, despite ongoing investments in our acquisition integration, brand, product, technology, compliance, collections and regulatory initiatives.  The expense disciplines driving this performance are now business as usual at BOQ.” 

Bad debts

“Bad debt expense increased to $200.5 million at the full year as a result of one-off commercial deals, the current economic conditions, and the extreme weather events of early 2011,” said Mr Kangatharan. 

“We saw an improvement in the second half of the financial year with impairment charges falling $68.3 million from the first half. 

“We believe bad debts will fall in FY2012 and our focus remains on well secured housing and SME lending and we have taken a more prudent approach to managing our provisions, reflected in our increased coverage. 

“On a positive note, in our Equipment Finance portfolio we have already seen a reduction of more than 50% in 90 day arrears from August 2010, demonstrating the effectiveness of our collection strategy.  We have taken a prudent approach to provisions and our bad debts are in line with SME Leasing portfolio over the cycle, with 90 days+ trending down from the June peak.” 


“Both our Insurance and Finance acquisitions have been successfully integrated and both businesses are now adding real value to our Group. The two acquisitions have already achieved payback of approximately $70 million of the $105 million capital deployed after only 14 months. 

“The Finance business has been launched to the market under a new BOQ Finance brand combining the best of being a bank and a finance company. The marketplace has responded positively to this strategy and BOQ Finance has already attracted a significant new partner. In addition, the Equipment Finance business, which represents approximately $3.1 billion in assets, has improved the arrangements with brokers and the structured sales team has a number of new partners coming on board. We launched our motor vehicle business and are seeing positive trends in new business volumes compared to this time last year. This business offers higher returns, based on the risk profile, and we believe it has further growth potential. 

“In terms of the Insurance business, the cost of purchasing St Andrew’s has been approximately 90% covered by the dividends generated in the 14 months since acquisition. Contributing to this has been an increase in cross-selling from the BOQ network, particularly in credit protection products, as BOQ customers sought to further protect their financial positions in the aftermath of the GFC.” 

Capital and liquidity

“At BOQ we continue to take a prudent approach to capital and liquidity. Our Tier 1 and total capital levels remain above APRA and internal benchmarks, despite the Bank absorbing the impact of APS120 changes,” said Mr Kangatharan.  

“We have maintained a conservative liquidity position of 16.5%, while paying down $550 million Government Guaranteed Debt in May and we have held sufficient liquidity to manage the maturity of a further $500 million on October 28 2011.  We are very comfortable with our liquidity position.” 

OMB network

“The OMB network remains the core of our banking business and continues to drive strong growth in both lending and deposits.  We have made significant progress in diversifying the sales productivity of the OMB Model to improve cross sales.”  


Mr Kangatharan announced a full-year dividend of 54 cents, which represents a payout ratio of 69%, saying “The Board decided to reward the loyalty of our shareholders with an improved dividend year on year, due to the Bank’s strong capital levels and the Board’s confidence in the performance of our underlying business.”   

BOQ 2011 full-year result snapshot 




Change on FY10 

Normalised Cash Profit After Tax




Statutory profit  




Retail Deposits




Loan Approvals




Loans Under Management
(before collective provisions):










 - Commercial  




   - Leasing  








Assets Under Management




Normalised Cash Cost to Income Ratio




Normalised Basic Cash Earnings Per Share (EPS) (c)




Normalised Diluted Cash EPS (c)




Dividend per share (c)




(1) The prior year has been restated for the finalisation of the acquisition entries of CIT Group and St Andrew’s Group, for details refer to the Profit Announcement.

• NPAT: Normalised cash NPAT down 10% year on year to $176.6m, in line with guidance and statutory profit down 13% to $158.7m.
• Underlying profit up 18% year on year to $447.4m: Diversification in operating income and continued expense management disciplines demonstrates continued strength in the underlying business.
• Continued strong growth: The Bank has continued to drive both lending and deposit growth above its peers. 
• Capital:  Tier 1 and total capital levels remain strong with Tier 1 at 8.4% and overall 11.4%.
• Cost-to-income: Strict expense disciplines have assisted the Bank in reducing its cost-to-income ratio further to 44.5%.
• Owner-Managed Branch network: Continue to look for opportunities to convert corporate branches to OMBs and open new OMBs in potential growth areas.
• Net Interest Margin: NIM improved 5bps from FY10 despite funding cost pressure.
• St Andrew’s: Dividends generated by this business have already covered ~90% of the purchase cost.
• BOQ Finance: Strong business development to date with further growth potential. Equipment Finance now repositioned for growth.