Cost Pressures Worry BoQ Investors

The Bank of Queensland (BOQ) has reported a 19% rise in its after tax cash profit and a higher interim dividend, but the market wasn’t too impressed as investors fretted about an unexpected rise in costs in the half.

The Brisbane-based regional lender said its cash net profit of $167 million was driven by earnings and loan growth from its acquisition of the professional loan book of Investec, and lower bad debts.

“It was a solid result driven by growing momentum in lending growth, strong net interest margin performance and further asset quality improvement,” directors said.

Statutory interim net profit was up 14% to $154 million.

The bank will pay an interim dividend of 36c a share, up 4% on the previous corresponding period.

But Bank of Queensland shares fell 2.4% to $14.01 as investors digested the news about the cost rise.

BOQ 1Y – BoQ profit up but on higher costs

However, cash profit was 1% lower than market forecasts due to those higher than expected costs.

It was hit by one-off costs, which the bank said had temporarily raised its cost to income ratio to 48.1% (48.1c in every dollar of income), up from 43.8% in the previous corresponding period. The bank has forecast the underlying cost ratio will still rise to around 45%.

These higher costs included the $10 million cost of writing off its customer relationship system, which the bank flagged in February. This added 3 percentage points to the cost to income ratio.

Expenses related to its purchase of a $2.5 billion loan book from Investec, now called BOQ Specialist, added another 1.1 percentage points to the cost rise.

The bank said BOQ Specialist added $19 million to its after tax profit, and it is on track to add $38 million for the full year.

Mortgage lending via the BOQ Specialist business also drove close to half of BOQ’s retail lending growth in the half year, adding $352 million of the $813 million loaned for mortgages in the period.

Overall, the bank said BOQ Specialists added about a third of total loan growth of $1.2 billion, with another third coming from BOQ’s franchises and other channels and another third from brokers.

Other bullet points from the result included a rise in the bank’s net interest margin of 0.20% to 1.97% (or 1.97c in every dollar) from 1.77% in the same half year of the previous year.

The company’s bad debt costs fell 0.18% (0.26% in the first half of 2013-14).

If there’s another spike this half then the pressure will be on management to cut to bring the cost to income ratio back into line.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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