The Bank of Queensland has announced a significant decline in its annual profit, with a decrease of about 70%. This drop is primarily attributed to sluggish mortgage lending and over AUD 300 million in one-off costs. The ASX-listed bank recorded a net profit of AUD 124 million for the 12 months ending in August, compared to a restated AUD 409 million from the previous year. While revenue was in line with expectations at AUD 1.76 billion, the net profit fell short of the average analyst forecast of AUD 137 million, according to data compiled by FactSet.
Dividend Cut and Financial Highlights
As a result of the challenging financial performance, the regional Australian lender has made the decision to reduce its dividend payouts. The bank declared a final dividend of AUD 0.21 per share, slightly higher than the half-year dividend of AUD 0.20 but lower than the AUD 0.24 distributed a year ago.
Furthermore, cash earnings, which excludes certain costs and one-time items, also decreased by approximately 8% to AUD 450 million. The net interest margin fell to 1.69% compared to the restated figure of 1.71% from fiscal year 2022. Analysts had expected a net interest margin of 1.72%, according to FactSet.
Mortgage Lending and Growth Strategy
Home-loan lending experienced a decline of 1.1% during fiscal year 2023, amounting to AUD 62.74 billion. The bank attributed this decrease to a strategic decision to moderate growth in areas where suitable returns could not be generated. On a positive note, retail deposits grew by AUD 3.1 billion.
"We are managing what we can control in current market conditions, positioning BOQ for recovery and growth when the cycle turns," said Chief Executive Patrick Allaway.
As Bank of Queensland navigates challenging market conditions, it remains focused on implementing strategies that will contribute to future recovery and growth.
Revenue and Margins Pressure in Fiscal 2024
The Bank of Queensland announced that it expects its revenue and margins to face continued pressure in fiscal 2024. The bank emphasized that mortgage pricing should reflect higher funding costs, and the competition for deposits will remain intense.
Concerns Regarding Mortgage Lending Growth
Analysts have expressed concerns about the bank's sluggish mortgage lending growth compared to its competitors. Recent suggestions from Citi analysts indicate that management instability has had a negative impact on the bank's performance.
Changes in Leadership
Chairman Allaway replaced George Frazis, who previously held executive positions at Westpac, as CEO in late 2022. Initially, Allaway assumed the role on an interim basis, but later became the permanent CEO.
One-off Costs Impacting Bottom Line
The Bank of Queensland's bottom line was affected by several one-off items. This included A$200 million in goodwill, A$35 million in restructuring costs, and A$57 million related to the integration of ME Bank, which was acquired by BOQ in July 2021. The integration process was completed during the most recent fiscal second half.
Restructuring and Redundancies
As part of the restructuring process, the bank incurred A$25 million in costs associated with approximately 250 redundancies throughout fiscal 2023 and the first quarter of fiscal 2024, which began on September 1.
Increase in Loan Arrears
Loans that were more than 90 days in arrears increased by 33% compared to the previous year, amounting to A$736 million. The rise in borrowing costs resulting from interest rate increases by the Reserve Bank of Australia contributed to this increase. Despite acknowledging the heightened risk in fiscal 2024 due to higher living costs, BOQ assured stakeholders that its asset quality remained sound.
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