The Bank of Queensland (BOQ) posted a 2% drop in first half cash earnings to $175 million as strong competition in the sector slowed lending growth and increased pressure on the bank’s net interest margins.
Statutory profit fell by 6% to $161 million on a 4% drop in revenue to $532 million for the six months to the end of February.
The bank’s results were slightly below forecast earnings by Deutsche Bank analysts, who predicted a 1.7% dip in revenue to $177 million.
BOQ faced strong competition for loans in a low interest rate environment, which pushed the net interest margin below 1.9%.
With margin pressures apparent, the bank focused on reducing costs, with operating expenses down 2% on the previous half.
CEO Jon Sutton said a number of efficiency measures were underway to meet cost reduction targets.
“Efficiency remains a key focus. We are committed to delivering on the 1% underlying expense target and have embarked on a transformation program to find further productivity efficiencies across the organisation,” he said.
In addition to tighter margins, the bank reported a fall in total lending of $168 million.
Sutton said that the bank had focused on the quality of its loan portfolio rather than chasing growth. The bank’s loan impairment expenses decreased by 25% to $27 million.
“We have prioritised margin and credit quality over growth in this half, in what has been an intensely competitive period not just in lending but also in retail deposits”.
Deutsche Bank revised down its two-year cash earnings forecasts for the bank by 1-2%, although they noted that upside risk exists if BOQ follows the lead of the Big 4 banks and raises interest rates.
BOQ, which sources 47% of its income from Queensland, improved the strength of its capital position, increasing its common equity tier one capital ratio by 29 basis points from the previous half to 9.29%.
The bank reported a fully franked interim dividend of 38 cents, in line with the previous half.
Mr Sutton said that although operating conditions have been difficult, BOQ faces a brighter outlook for the second half.
“We have seen a 30% uplift in mortgage application volumes in recent weeks which gives us confidence of a return to growth in the second half”.
“Even though it has been a tough environment, we are at a turning point. Our increased mortgage momentum, outlook for revenue growth and capital optionality all provide a strong framework to deliver on our full year targets”.
BOQ shares opened 9 cents lower this morning at $11.65.