The Bank of Queensland’s 2018-19 full-year profit drop will turn out to be the canary in banking’s coal mine for the next year or so.
The bank yesterday reported a 14% slide in cash earnings to $320 million for 2018-19 and warned that earnings in the current 2019-20 financial year will fall again.
A combination of factors will drive earnings lower – weak revenue, no earnings growth, rising customer costs, compressed interest margins (from those RBA rate cuts). And these not only mean lower earnings but more pressure on dividends after the 14% chop in full-year payout to shareholders reported on Thursday.
Bank of Queensland’s final dividend was cut to 31 cents a share from 38 cents a share for a 2018-19 total of 65 cents, down from 76 cents the year before. Statutory net profit dropped 11% to $298 million.
And that, in turn, signals a strong possibility of similar outlooks (and a lower dividend) are all in store for its larger rivals – NAB, Westpac, and the ANZ when they report at the end of this month and early November.
New BoQ CEO, George Frazis said on Thursday:
“We expect lower year-on-year cash earnings in FY20 with revenue and impairment outcomes in line with FY19, higher post-Hayne regulatory and compliance costs, and increased operating expenses related to our investment in technology,” Mr. Frazis said.
Mr Frazis blamed the “disappointing” results lower income from interest and fees, higher costs, and skinnier margins (the net interest margin fell 5 points to 1.93% while the cost to income ratio jumped 300 points to 50.5% as costs could not be cut fast enough to cover the slowdown in revenues (which were up 2% to $1.09 billion)
“It (the result) underscores the need to bring about a change in our culture, the way we do business and how we prioritise our investments that will change our future,” Mr. Frazis said.
“We are very aware of the need to move quickly to return the company to sustainable, profitable growth.”
The bank plans will spend $30 to $40 million in launching a new Virgin Money digital bank late next year.
“This is an investment in a long term value creation for this iconic brand, which has demonstrated success in attracting customers across its existing product suite,” the bank said.
“It is also anticipated that this investment in a new digital banking platform will be leveraged across the group in the years ahead.”
Bank of Queensland shares eased 2.4% to $9.42.