No hints for the rest of the banking sector from the 2015-16 full year profit from the Bank of Queensland, except that it will be a hard scrabble year so far as earnings and dividend growth is concerned
Bank of Queensland posted a $360 million full year cash profit after tax, a result that was in line with forecasts, and up around 6%, but contained a couple of warning flags – a rise in costs and a fall the net interest margin.
As a result investors marked down the shares, describing it as a soft result – they closed 2.7% at $11.15, but had been down more than 5% at $10.85 in early trading.. The most telling part of the release yesterday was the new that final dividend is being held at 38 cents a share – taking the total for the year to 76 cents (up 3% because of the higher interim).
That tells us the bank’s board has decided the outlook doesn’t really allow for any shareholder directed largesse.
The bank’s net interest margin, the difference between interest charged on loans and cost of funds, eased basis points to 1.94% (or 1.94 cents in the dollar) – that’s no great surprise.
Total lending growth slowed to 5%, slightly below loan growth in the entire banking system. The reported statutory net profit was up 6% to $338 million.
The cost to income ratio increased up 80 basis points to 46.8% which is a worry as investors are looking for banks to keep costs at least under control in the current low and slow environment. The 4% rise in costs (which the bank wants to cut to just 1%) was in part due to the costs associated with the purchase of Virgin Money.
Loan impairment costs declined by 9% to $67 million, or 16 basis points of gross loans.
That was a bit of a surprise given how the bigger banks have seen a rise in bad debts and impairment charges because of problem loans in the resources sector, and in housing in resource states such as Queensland.
Bank of Queensland reported a rise in its common equity tier one ratio of 9 basis points.
CEO Jon Sutton described the result as pleasing in tough conditions.
"BoQ has delivered increased cash earnings after tax for the fourth consecutive year, a significant achievement in an environment of low interest rates and intense competition," Mr Sutton said.
"Expectations of lower interest rates in Australia for longer has meant a lower rate of return on capital and low cost deposits.
Analysts said the bank had seen a significant squeeze in both the second half and full year with underlying cost growth significantly outpacing revenue growth.