Bank of Queensland lifts lending, digital strategy remains on track

  • By Christine St Anne

Bank of Queensland reported a lift in its commercial and housing loan portfolios underpinned by its niche play.

In its first half results announced on Wednesday, BOQ reported that gross loans and advances rose $781 million to $47 billion.

The banks said that the focus on niche segments has seen improvements in lending growth across all brands.
BOQ Specialist grew lending balances by $502 million across its commercial and housing loan portfolios.

Virgin Money Australia delivered $489 million of growth in its housing portfolio, which now stands in excess of $3 billion.

BOQ Business delivered a further $189 million of growth in its commercial portfolio during the first half.

However the bank’s branch and broker housing loan portfolio contracted a further $441 million during the half but BOQ said that it remains focus on rebuilding the channel.

“It’s pleasing to see the momentum building in both the housing and commercial portfolios,” BOQ CEO George Frazis said.

“Both Virgin Money and BOQ Specialist have continued to grow their housing portfolios, with BOQ Retail still contracting but driving an improvement on the previous periods through increased acquisition volumes,” he added.
The bank also reported a 10 per cent fall in cash earnings to $151 million. The result was impacted by compliance and technology investment charges already flagged in March.

In light of APRA’s guidance, the bank also announced it would defer the paying an interim dividend.

Morningstar bank analyst Nathan Zaia said the results around its lending book were solid but were for reported for the end of February.

Therefore any assessment is backward looking, as the numbers don’t reflect the post COVID-19 environment.

Zaia added that overall BOQ seemed to have a relatively positive outlook going forward adding that its $10 million increase in collective provision for its loan book in response to the potential impacts of COVID-19 was optimistic.  

The bank outlined that its underlying asset quality of the portfolio remains sound with impairment expenses were flat at $30 million for the first half of 2002 versus the previous corresponding period - equivalent to 13 basis points of gross loans.

In light of APRA’s decision to urge banks to pause its dividends, Zaia added that BOQ’s also seemed to have an optimistic assessment of its capital strength.
The bank said it remains well capitalised with a CET1 ratio of 9.91 per cent, an increase of 87 basis points during the half.

BOQ also reaffirmed its commitment to its transformation strategy with IT expenses in the first half of 2020 at $75 million.

For Zaia, the bank has no choice but to move on its investment spend on technology despite the headwinds in order to remain competitive.

Both phase one of BOQ’s Virgin Money digital bank as well as the core infrastructure cloud modernisation are on track for 2020.

In addition, a number of investments have been delivered during the half that were aimed to improve customer experience.

These include a new mobile app for BOQ Specialist customers, a new telephony platform for the contact centres, the introduction of a new customer relationship management tool for the frontline retail banking teams, and the first phase of the home buying transformation program, which has reduced the time to conditional yes for customers from 5 days to less than 1 day and increased NPS by 27 points.

“We are continuing to execute against this strategy in order to transform BOQ and have the flexibility to adjust or re-sequence our capital investment program as and when market conditions require us to pivot,” Frazis said.

By the numbers

While total income of $541 million for the half was flat, net interest income increased one per cent to $483 million, driven by $781 million of lending growth in the first half of 2020, offset by a three basis points contraction in NIM to 1.89 per cent over the half.

Non-interest income decreased by 11 per cent on the first half of 2019 to $58 million.
Operating expenses increased four per cent compared to the second half of 2019 to $292 million due to increased expenses from risk and regulatory programs, and investment in strategic technology projects.

The productivity review has delivered a four per cent reduction in headcount during the half.