Bank of Queensland – Page 3 – Digital Finance Analytics (DFA) Blog

BOQ lifts variable home loan interest rates

BOQ today announced it will increase interest rates on its variable home loan products by 0.12 per cent per annum for owner-occupiers and 0.25 per cent per annum for investors.

The increase will see the Bank’s Clear Path variable rate home loan lift to 4.72% per annum for owner-occupiers and 5.14% per annum for investors. The standard variable rate home loan will move to 5.86% per annum for owner-occupiers and 6.28% per annum for investors. CEO Jon Sutton said the changes were driven by the need to balance growth, risk and margins over the longer term. “This is not a decision that was made lightly and we were very mindful of the impact on our customers even in an environment where interest rates remain at very low levels,” he said. “However, given the fiercely competitive market and increased funding spreads and hedging costs, these increases are necessary to help us achieve the appropriate balance between growth, asset quality and profitability,” he said “We still retain very competitive products and pricing, particularly with our lead mortgage product Clear Path, which will enable us to continue to compete strongly in the segments we want to target. “Clear Path is a full-featured, low-fee product which, after these changes, still offers one of the best comparison rates in the market to our customers.”

The new rates will be effective from 15 April 2016.

Bank Of Queensland Tweaks Business Model And Warns On Margins

BOQ has today announced that it is embarking on a program to reshape its organisational structure to better affect BOQ Group’s strategy.

Managing Director & Chief Executive Officer Jon Sutton said the size and shape of BOQ’s business had changed significantly over the last three years as the Group had grown organically and through acquisition.

“We have redefined our strategy over the last 12 months and need to ensure our organisational structure continues to support this strategy,” Mr Sutton said.

“We are building a more flexible and efficient operating model, which is increasingly important given the accelerated pace of change in financial services. This will also improve the way we work by reducing duplication and manual processes and will assist us in finding better ways to share capabilities across the Group.”

To enable these organisational changes to be implemented, an investment in the order of $15m (pre-tax) is anticipated to be incurred over the course of FY16. This expense will not be excluded from Cash Earnings in FY16. The investment required to implement the change initiatives should deliver 100% payback through cost savings within 12 months.

“We expect this investment in fine-tuning our operating model will help accelerate our path towards a Cost to Income ratio in the low 40% range in the years ahead.” Mr Sutton said.

“The uncertainty in the global economic outlook over recent months has resulted in a significant increase in volatility in funding markets. While strong competition for new business remains, this creates headwinds for our margin outlook. The challenges of this market reinforce the need for us to be more nimble and efficient to ensure we can take advantage of opportunities as they arise.”

BOQ will report its half year results for the period ending 29 February 2016 on 7 April 2016.

BOQ Joins The Mortgage Hike Jig, Again.

Showing again that mortgage repricing is more about margin protection than meeting capital requirements, non-IRB bank, Bank of Queensland has announced it will increase interest rates on its variable home loan products by 0.18 per cent per annum.

The increase will see the Bank’s Clear Path variable rate home loan lift to 4.60% per annum, the standard variable rate home loan for owner-occupiers move to 5.74% per annum, and the standard variable rate home loan for investors increase to 6.03% per annum.

Matt Baxby, Group Executive Retail Banking, said the decision was driven by the need to balance growth, risk and margins over the longer term.

“Standardised banks like BOQ still carry much higher funding costs and capital requirements than the major banks and we need to get the balance right between sustainable growth over the longer term, risk and margins,” he said.

“These are always difficult decisions but on balance we believe it is the right one in the current environment.

“The more resilient and financially strong that standardised banks are, the more we can compete on a range of fronts including further investment in our customer-facing systems and processes.”

The new rates will be effective from 20 November 2015.

They had a round of uplifts earlier in the year, and combined their margins will be fattened significantly.

Bank of Queensland Delivers Record Result

BOQ has delivered record statutory and cash profit results for the financial year to 31 August 2015, despite strong competition, and funding pressure. Growth in broker originated home loans helped. Statutory profit after tax was up 22% on the prior year to $318 million and was helped by a reduction in impaired assets. As a standard capital bank, it may benefit from the higher IRB capital being required of the majors. In summary, BOQ bears the hallmarks of a well run business, so is well positioned to leverage digital transformation and growth beyond Queensland next year. Unless of course the housing market goes pear-shaped!

After tax cash earnings increased 19% on FY14 driven by higher net interest margin, a strong full year contribution from BOQ Specialist and further improvement in impairment expense. Basic cash earnings per share grew 9% to 97 cents per share.

Net interest margin for the full year was 1.97%, up 15 basis points on the prior year due largely to the higher margin BOQ Specialist business.

The Group’s cost to income ratio increased to 46%, up from 43.9% in the prior year, due to some one off items.

The FY15 impairment expense of $74 million was a $12 million (14%) improvement on the prior year. Impaired assets declined by $56 million (19%) to $237 million following a reduction in new impaired assets and continued momentum in realisations.

BOQ Finance’s loan impairment expense increased $10 million which was primarily attributable to the impact of the mining industry downturn on associated sectors.

The Group further strengthened its capital ratios during the year with the CET1 ratio increasing 28 basis points to 8.91%. CET1 increased in the second half as underlying cash earnings supported 7% annualised loan growth and a two cent increase in the final dividend.

The Bank will pay a final dividend of 38 cents per share, up two cents on the previous corresponding period, taking full year dividends to 74 cents per share fully franked.

New distribution channels, including brokers, also helped diversify BOQ’s asset base, with the proportion of total lending in Queensland falling below 50% for the first time.

The housing portfolio grew $1.9 billion or 7% (0.9x System) supported by the contribution of BOQ Specialist, which generated growth of $1.3 billion. The mortgage broker channel, which accounted for 15% of the Retail Bank’s housing settlements, was up from 5% in the prior year.

Commercial lending balances grew 8% to $8.3 billion while BOQ Specialist’s commercial book increased 14% to $2.3 billion.

The BOQ Finance portfolio grew by 2% to $4 billion, a solid result in an operating environment that has seen sluggish investment in plant and equipment. BOQ Finance’s strategy of expanding its third party origination sources while continuing to support the Business and Retail Bank network has positioned the business for future growth.

BOQ Specialist contributed $43 million to the Group’s FY15 result in its first full year since acquisition, exceeding the maintainable earnings guidance of $38 million announced at the time of acquisition by 13%.

The business delivered loan growth of $1.6 billion while maintaining margins and credit quality. BOQ Specialist serves health, medical and accounting customers and continues to benefit from the higher growth rates of these segments compared to the broader economy.

Looking at the housing data in more detail, the LVR and loan mix remains stable.

Housing loan arrears are under control, and fell a little in August.

Suncorp and Bank of Queensland Join The Rate Rise Dance

More banks join the investment loans rate hike.

Suncorp increased its interest rates by up to 0.27% p.a. for standard variable and access equity (to 5.81% p.a.) and back to basics rates (to 5.23% p.a.) for new and existing investor loans, effective 31 August.

Bank of Queensland has lifted home investor loan rates by 0.29% effective August 10. It will have more impact on existing borrowers than new however because its “Clearpath” loans – with discount of more than 1 per cent on its variable rate – are unchanged. Most new mortgages are offered under this product, applicable to both owner occupied and investor loans and they have headroom to grow their book – allowing for the 10% speed limit on investor loans.

ASIC Concerns Prompt Bank of Queensland to Improve Lending Practices

Bank of Queensland Limited (Bank of Queensland) has improved its lending practices following ASIC’s concerns about the way it assessed applications for home loans.

ASIC was concerned that Bank of Queensland was using a benchmark figure, the Henderson Poverty Index (HPI), to estimate the living expenses of consumers applying for home loans, rather than asking borrowers about their actual expenses.

In ASIC’s view, the lack of enquiry about actual expenses, and reliance solely on HPI (which is used as a measure for estimating the minimum amount of money families of different sizes need to cover basic essential needs) was not consistent with responsible lending obligations imposed by the National Credit Act.

Bank of Queensland has updated its home loan application forms to obtain more information about a customer’s living expenses. The bank will carry out an assessment of the suitability of a loan using the higher of either the living expense figure supplied by the customer or an appropriate benchmark figure.

ASIC notes that the bank will continue to review the circumstances of borrowers who go into hardship or default to ensure that they have not been disadvantaged by a loan provided prior to the change in policy.

ASIC Deputy Chairman Peter Kell said, ‘This outcome is part of ASIC’s ongoing focus on the lending industry’s compliance with responsible lending laws. Lenders must carry out inquiries to determine whether a credit contract will be unsuitable for a consumer. Using benchmark figures such as the Henderson Poverty Index alone to estimate a consumer’s financial position is not sufficient to meet this requirement.’

In November 2014, ASIC updated Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209) to clarify that credit licensees cannot rely solely on benchmark living expense figures, and must also make inquiries about the borrowers’ actual living expenses.

ASIC acknowledges the co-operation of Bank of Queensland in resolving this issue.

BOQ 1H Results Supported By Housing Lending

BOQ today announced record interim cash earnings after tax of $167 million for the six months to 28 February 2015, a solid result driven by growing momentum in lending growth, strong Net Interest Margin performance and further asset quality improvements. Statutory profit after tax rose 14% to $154 million on the prior comparative half. Home lending including investment loans was a significant element in the results.

In its first full half since acquisition in July 2014, BOQ Specialist performed well with highlights including lending growth of $352 million in on-balance sheet mortgages, on track to exceed its target for the full financial year. BOQ’s financial performance enabled the Board to set an interim dividend of 36 cents per share fully franked, an increase of 4 cents or 13% on1H14.

Lending growth headed back towards system levels as a result of the strategic initiatives BOQ has implemented in recent years, including expansion of the mortgage broker channel and investment in the Business Bank’s presence and capabilities.Retail lending grew at an annualised 6% to $27.3 billion over the February half with $813 million underlying growth. The housing book saw increased diversification with 57% of applications originating from outside of Queensland, largely driven by the broker channel which contributed$420 million of loan growth and accounted for 14% of settlements.

Investment lending is below the 10% monitoring threshold which APRA has imposed.

Commercial lending balances continued to exceed system levels, growing by an annualised 10% over the six months to $8.0 billion. A greater presence in New South Wales, Victoria and Western Australia saw the geographic concentration of the portfolio in Queensland reduce further. In its first full half of contribution, BOQ Specialist’s contribution to lending growth exceeded expectations delivering $352 million in on-balance sheet mortgages while maintaining margins and credit quality across the portfolio. BOQ Finance grew by an annualised 6% over the half to $4.0 billion. This was a healthy result against an industry backdrop of lower volumes due to a slowdown in plant and equipment investment in the broader economy.

Despite a highly competitive market, the Bank’s Net Interest Margin rose 20 basis points from February 2014 to 1.97% due to an 11 basis point increase from BOQ Specialist as well as ongoing pricing discipline. Deposit interest rates were managed down.

BOQ’s Common Equity Tier 1 ratio increased 19 basis points to 8.82% during the half. The Bank’s capital position remains the highest of Australia’s regional and major banks based on Standard and Poor’s risk-adjusted capital approach, positioning it well given the evolving domestic and global regulatory environment. Cost to Income (CTI) ratio for the half increased to 48.1% due to the inclusion of BOQ Specialist for the entire period as well as one-off costs(property costs and CRM impairment expenses) already flagged to the market. Excluding BOQ Specialist, underlying expense growth was 3% annualised from 2H14. Total loan impairment expense was down 22% on prior comparative period to $36 million (1H14: $46 million). Total impaired assets across retail,commercial and BOQ Finance fell 13% to $259 million (1H14: $298 million). Housing impairments rose.

During the half, BOQ continued to strengthen its balance sheet, creating a sustainable funding profile that is able to support growth and deliver internal capital generation. Fitch Ratings’ decision in November 2014 to lift its long-term credit rating from BBB+ to A- followed similar upgrades from other ratings agencies. These changes have improved access to long-term wholesale funding markets and allowed the Bank to actively manage its funding profile by diversifying composition and increasing duration, while reducing cost.

BOQ advocates the implementation of stronger capital measures as recommended by the FSI inquiry.

We think BOQ’s future will be determined by the trajectory of the housing market, and the extent to which they are able to grow their commercial business in an increasingly competitive market. They are certainly at a capital disadvantage compared with the majors and will need to target customer segments carefully to compete successfully.