Bank boss tips ‘at least two’ rate cuts this year

Bank of Queensland chief executive Patrick Allaway says Australia is approaching a potential slump in the global economy from a position of strength, as the bank forecasts at least two interest rate cuts over the rest of this year.

The regional bank reported its half-year earnings on Wednesday following a period of financial market volatility sparked by US President Donald Trump’s trade war, which last led to some of the biggest moves on global markets since the COVID-19 pandemic.

BoQ chief executive Patrick Allaway.Credit: Dan Peled

The wild swings on markets have raised fears about the economic fallout from a US-China trade war, sparking speculation the Reserve Bank could move to shield the economy by slashing interest rates.

“What we have seen, over the last couple of months, which I think has been causing volatility in markets and causing repricing of risk, is a potential of dismantling of global trade. Obviously, they stepped back from some of those initiatives, but also potentially a dismantling of globalisation,” Allaway said.

The Australian economy was in a strong position, he said, thanks to the high level of employment, high government spending, and a resilient financial system. But he added that if the global situation led to a quick slowdown in the economy, the Reserve Bank of Australia could help to cushion the economy by cutting interest rates.

“All things being equal given where the economy is today and given where inflation is, we are forecasting at least two rate cuts through the year, but I’m not going to comment on whether they should or shouldn’t,” he said.

Financial markets are betting the Reserve Bank next month will cut the cash rate from 4.1 per cent to 3.85 per cent, and markets imply there is a 30 per cent chance of a super-sized 0.5 percentage point cut.

The results for BOQ, which is going through a period of major change, showed cash earnings were up 6 per cent, to $183 million, after cost-cutting and a move to step back from the competitive mortgage market.

Barrenjoey analyst Jon Mott said BOQ had delivered a “reasonable” result, with earnings beating market expectations, though this was partly because of a very low charge for impaired loans. BOQ shares had jumped 5.3 per cent to $6.84 in afternoon trade.

Allaway, who was formerly chair of BOQ before moving to CEO in 2023, has been driving major changes at the regional bank including last year announcing plans to cut up to 400 jobs and convert more than 100 franchisee branches to corporate-owned outlets.

Financial markets are betting the Reserve Bank next month will cut the cash rate from 4.1 per cent to 3.85 per cent.Credit: Louie Douvis

The move has sparked conflict with dozens of former franchisees – Allaway said BOQ was in dispute with 63 former owner-managers and had been through a mediation process.

Despite the dispute BOQ said it had completed the process of converting owner-manager branches to corporate-owned branches and this would add 12 basis points to its net interest margin – a key gauge of profitability.

The bank’s mortgage portfolio shrunk by $1.5 billion in the half, after BOQ last year said it was stepping back from the competitive home loan market – and the company said mortgage contraction would continue in the second half as it sought to expand in business lending.

Allaway acknowledged other banks were also eyeing off the business lending sector, but said BOQ believed it had an advantage in areas including healthcare and parts of agriculture.

BOQ said impaired loans were likely to increase from the historic lows of today, though Allaway said there were no “red flags” in the bank’s book.

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