BOQ restructure to convert all branches as cost cutting steps up

Bank of Queensland has retreated from its return targets and is up-ending its model by converting franchise branches into corporate ones, while rationalising its network.

Bank of Queensland CEO Patrick Allaway said it was acting to address “legacy complexity and structural challenges”. Picture: John Gass

Bank of Queensland has retreated from its return-on-equity target and is up-ending its model by converting owner-managed branches into corporate ones, as it accelerates cost-cutting plans.

The latest move on branches brings to an end BOQ’s franchise model, established in 2002, and will lead to branch rationalisation, allowing the lender to focus on growth in its business bank.

All of BOQ’s 114 owner-managed branches will convert to corporate branches.

BOQ also plans to cut the equivalent of 400 full-time roles, but as flagged by The Australian, the latest cost-cutting drive may see as many as 600 jobs eliminated over the next two years.

BOQ chief executive Patrick Allaway admitted on Thursday that even more job cuts were likely the bank’s 2025 financial year.

“As we continue to decommission our heritage legacy systems, you would expect that we can drive more efficiency through the organisation … We expect that there will be more efficiencies through FY25 and into 2026,” he told analysts, when asked about the potential for further headcount reductions.

Bank of Queensland’s branch on Woodward St, Edge Hill. Picture: Brendan Radke

The elimination of 400 jobs will lead to a restructuring charge of $25m to $35m post-tax, and BOQ expects annualised savings of about $50m, in addition to the $200m in cost savings already outlined. The cuts cover areas including the retail bank, technology and operations.

The latest wave of job cuts follows BOQ axing about 220 jobs almost a year ago – in several tranches – to simplify its operations, as it worked to bed down its purchase of ME Bank.

The bank employs about 3163 staff, not including those within its owner-managed branches.

Mr Allaway said that with banking becoming more commoditised and net interest margins remaining under pressure, BOQ’s retail model was “no longer sustainable”.

He told analysts the revised strategy would see the bank “fundamentally change” the way it operated.

“We have not taken these decisions lightly,” he said.

The strategic moves spurred BOQ to slice its 2026 return on equity target from more than 9.25 per cent to 8 per cent on ­Thursday.

The bank also moved away from a cost-to-income ratio target of less than 50 per cent, saying it would now aim for 56 per cent.

BOQ shares plummeted 7.3 per cent to $5.95 on Thursday as investors punished the bank for reducing its return target. The slump was the worst performance across the banking sector.

Fund managers and analysts raised concerns about execution risks liked to BOQ’s plan.

“It makes a lot of sense to do this (overhauling the BOQ model). There’s a period of time before we can see the full execution but it will put BOQ in a stronger competitive position having a simplified structure,” said Regal Funds Management’s Mark Nathan.

“The owner manager structure was unique, and unwinding that will be challenging, but (they’ll be) rewarded if done successfully.

“With their digital transformation and enforceable undertakings, BOQ has a lot on their plate at the moment.”

Citigroup analysts highlighted “significant execution risk” in BOQ’s revised strategy, given the materiality of the productivity savings to the bank’s current cost base.

“Even if we assume that management’s aspirations are realised, investors still have to grapple with the fact that it is a lot of work, carrying significant risk, to ultimately remain with a bank that returns below the cost of capital,” they said.

Macquarie Capital’s trading and sales desk said BOQ’s strategy overhaul could make the bank “appealing as (an acquisition) target down the track”, although cautioned any deal would require regulatory approval.

The regional banking sector has experienced consolidation in the past three years as ANZ acquired Suncorp’s bank and BOQ acquired ME Bank. Just this week, Auswide Bank and MyState proposed a merger.

BOQ has annouinced a major restructuring plan.

The cost of BOQ’s branch project is expected to be $115m to $125m pre-tax and to amortise over four years.

Mr Allaway said there was “a very clear formula” in contracts for BOQ to acquire the owner-managed branches, and he didn’t expect disputes with franchisees.

Starting in the 2026 financial year, the net cash profit benefit from the measure is expected to be $20m annually, with Mr Allaway saying BOQ would “enhance this” in future years.

Managers and staff within franchise branches are being offered employment, but the bank signalled branch numbers would decline through “consolidation opportunities” as more customers shifted to digital channels. Any redundancies for staff within those branches would be covered by existing franchise owners.

Analysts including Barrenjoey’s Jon Mott asked Mr Allaway about non-complete clauses if owner-managers opted to leave and quizzed him about customer attrition as these measures were rolled out.

The branch conversion eliminates a key point of difference between BOQ and its peers. The bank’s owner-manager branches were informed of the decision on Thursday, and the conversion is expected to be complete in March.

BOQ wants to accelerate growth in its business bank, where it added 10 bankers in the current half. It is targeting health, professional services and agriculture.

Originally published as BOQ restructure to convert all branches as cost cutting steps up