BoQ Ahead of the Curve Despite Margin Squeeze

Bank of Queensland (ASX: BOQ) has joined the much larger Commonwealth Bank in pointing to pressure in its net interest margins (NIM) from the continuing low level of official interest rates.

The Commonwealth sparked a reassessment of the big banks in its first quarter trading update in mid-November when it pointed to a big fall in the NIM and yesterday Bank of Queensland (BoQ) shareholders leaned at the AGM that its net interest margin will be slightly lower than expected this financial year.

But the bank remains confident that it still expects revenue to grow faster than costs.

Investors accepted that confidence, sending the shares up more than 4% to $7.92. That’s still a long way from the most recent high of $9.78 in mid-October.

CEO George Frazis told the meeting that the BoQ would be the latest bank to feel pressure on its net interest margin (NIM) – which compares funding costs with what banks charge for loans.

Mr Frazis said intense price competition, increased fixed rate lending and the Reserve Bank’s removal of “yield curve control” were all contributing to NIM “headwinds”.

“This will result in a slightly lower 2021-22 NIM than previously guided,” Mr Frazis said.

But he reconfirmed guidance that the bank expected revenue would grow faster than costs – known as “positive jaws” in banking jargon.

He also said expenses in 2022 were expected to be 1% lower than in 2020, due to extra “productivity benefits.”

Mr Frazis said BOQ had received a strong flow of loan applications in its business and housing portfolios in the first quarter, with stronger growth in ME Bank.

The bank revealed that its growth momentum has continued throughout the first quarter, with strong application volumes across both the housing and business lending portfolios.

Shareholders were told that the bank’s housing portfolio across the Bank of Queensland and Virgin Money brands increased by about $1 billion for the quarter, continuing above market growth. On top of this its ME Bank brand returned to growth for the month of November, with application volumes in the first quarter up 62% compared to the FY 2021 average

The bank also revealed that Business Banking lending grew by ~$200 million during the first quarter, with the asset finance business also performing well.

In addition, the bank said its strong growth in retail and business remains disciplined and high quality, with low levels of 90% and above LVR (Loan To Valuation Ratio) lending in home mortgages and a focus on small and medium enterprises in the business bank.


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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