Good progress made on retail bank, says BOQ
Despite another challenging year, good progress has been made on the digital transformation with six core projects completed, according to Bank of Queensland CEO George Frazis.
The completed projects include moving the data centres to a cloud environment while the first phase of the Virgin Money digital bank remains on track for a soft launch in December this year.
Despite the challenging environment, BOQ has remained focused on strategy execution and transformation,” Frazis said as he announced the bank’s full year results.
It’s refreshed strategy was first announced earlier this year.
“2020 has been a year like no other,” he said as the bank announced a 30 per cent fall in cash earnings to $225 million.
The result was largely due to the $133 million COVID-19 provision.
Operating expenses also increased by 7 per cent to $594 million.
The key drivers were digital transformation and $21 milloin invested in risk and regulatory programs.
This expense growth was partly offset by $30 million productivity savings
However, its net interest margin increased 3 basis points in the second half of 2020, which combined with lending growth, drove the 3 per cent uplift in revenue during the half.
Housing growth lifted to be broadly in line with system, while business lending grew by 3 per cent as system growth contracted.
Customer deposit growth of $2.3 billion over the year was assisted by a liquidity boost from government stimulus.
Deposit to loan ratio of 74 per cent up from 69 per cent in fiscal 2019.
The bank also provided details of its loan deferrals.
Of the 21,000 customers who accessed banking relief, 25 per cent continued to make full or partial repayments.
Since the peak in April, the bank has seen a reduction in the total loan balances on deferral by 18.8 per cent.
As at 31 August 2020, BOQ has 12 per cent of housing customers and 16 per cent of SME customers remaining on banking relief.
Latest data puts Queensland as the state with a high level of deferrals – including Victoria.
According to Morningstar bank analyst Nathan Zaia, despite BOQ having a much larger percentage of its loan book in deferral compared to the industry, he does not see much higher losses over time.
Zaia believes that BOQ will see a sharp reduction in deferrals in coming months though, with around 37 per cent of its loan deferrals tied to the medical sector, which should recover strongly.
Despite his confidence in muted loan losses, the bank analyst remains concerned by Queensland’s prolonged border closures hurting tourism exposed companies.
“The negative impact on consumer facing businesses will likely have a ripple effect on commercial property and potentially residential property, which is another key concern for us,” Zaia said.
As Zaia notes that while seeking to geographically diversify over the years, Queensland still accounts for 41 per cent of the bank's SME loan book and 45 per cent of the mortgage book.
On the deposit front, Zaia highlights that the regional bank’s deposit funding has a greater weighting to term deposits as opposed to cheaper transaction accounts.
“This should see net interest margins hold up better than some peers.
“Unlike cash in transaction accounts where there is little or no room to move, term deposit rates are being repriced given cuts to the cash rate and an increased savings rate.”