Bank of Queensland Profit Drops 33% Amid Structural Challenges

Bank of Queensland (BOQ) reported a 33% decline in cash earnings after tax to $172 million for the first half of the 2024 financial year, as the bank faced structural challenges including increased competition, inflation, and higher funding costs that squeezed its profit margins. The bank's statutory net profit after tax rose significantly to $151 million, largely due to the sale of its New Zealand asset portfolio.

Total income fell 12% to $795 million, driven by lower margins from competitive pressures and a contraction in lending. Expenses increased 6% due to inflation and investments in risk, compliance, and technology. BOQ's net interest margin contracted 24 basis points to 1.55%, and it paid a 15% lower interim fully franked dividend of 17 cents per share.

BOQ CEO Patrick Allaway said the results were impacted by industry headwinds, heightened competition for lending and deposits, and higher funding costs across the banking sector. However, the bank expects revenue and margin pressures to moderate in the second half of 2024, although deposit competition is forecast to continue.

Why this matters: The structural challenges faced by Bank of Queensland reflect broader pressures on the Australian banking sector, with rising competition and costs squeezing profit margins. The performance of regional banks like BOQ can provide insights into the health and dynamics of the wider industry.

Despite the challenging environment, Allaway highlighted that BOQ has made progress on its simplification and productivity agenda, agreed on remedial action plans with regulators to strengthen the bank, and continued its digital transformation. The bank's capital position remains strong, with its CET1 ratio expected to stay comfortably within the target range. Looking ahead, BOQ anticipates loan impairment expenses to remain below the long-term average.

Key Takeaways

• BOQ reported a 33% decline in cash earnings to $172M in 1H24.
• Total income fell 12% to $795M due to lower margins and lending.
• Expenses rose 6% due to inflation and investments in risk, compliance, and tech.
• BOQ expects revenue and margin pressures to moderate in 2H24.
• BOQ's capital position remains strong, with loan impairment expenses below average.