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.
