BoQ chief says customers are ‘well placed to weather rising interest rates’

Investors have cheered the first sign of higher interest rates flowing through to banking profits as the Bank of Queensland reported growth in income and issued an upbeat assessment of the Australian economy.

Shares in the Bank of Queensland surged 11 per cent to $7.59 on Wednesday as investors weighed annual results for the 2022 financial year, in which cash earnings fell but total income increased 1 per cent to $1.7 billion.

Bank of Queensland chief executive George Frazis is confident Australian households and businesses are coping with higher interest rates. Credit: Nick Cubbin

The bank delivered $508 million in cash earnings, an adjusted measure of profits that is watched closely in markets. Statutory profits were $426 million, a 15 per cent increase compared with last year. It also delivered a $4.4 billion growth in home loans across its BoQ, Virgin Money and ME Bank brands.

Despite warnings economies across the globe are headed towards recession, BoQ chief George Frazis said the Australian economy was well-placed to weather a worsening outlook. He said moves by the Reserve Bank to slow the pace of interest rate hikes, and the federal government’s emphasis on balancing their upcoming budget, were “very sensible”.

“We do have to get inflation under control, and we’ve got to do that carefully,” he said.

Investors were pleasantly surprised by the bank’s stronger-than-expected net interest margin, which compares a bank’s funding costs with what it charges for loans and is a key influence on profitability.

Macquarie analyst Victor German said the bank’s strong margins would probably flow on to an upgrade in the first half of 2023.

“On one hand, it’s a positive sign for the sector that margins are improving, and that’s across the banks,” German said. “The market was worried that Bank of Queensland wasn’t going to benefit from a higher interest rate environment ... so that better than expected margin direction [probably] provided the catalyst for the bump.”

The company reported 3 per cent growth in expenses, factoring in around $14 million in savings from the acquisition of ME Bank, but that did not deter investors.

“The costs were a little bit worse but the margins improving are more relevant for earnings,” said Omkar Joshi, portfolio manager at Opal Capital Management. “It’s not a massive surprise given interest rates are going up. Add to that, the stock had been pretty weak recently.”

Frazis said although the one-off cost of acquiring ME Bank had been significant, it had raised $1.5 billion in deposits and delivered the bank nine times the number of new customers per month than it was getting previously.

Frazis said that although increasing interest rates would be difficult for customers in general, the bank had taken steps to grow its books while also ensuring its customers were not over-leveraged.

“There are some people in Australia that have never experienced a rising interest rate,” he said. “We’ve got about 53 per cent of our customers who are over a year or more ahead on repayments.

“So again, that’s another indication that our customers are really well-placed to weather rising interest rates.”

Frazis would not be drawn on ANZ’s proposed $4.9 billion acquisition of Suncorp, expected to be submitted to the ACCC for approval in coming weeks, saying “Suncorp and ANZ would do what’s right by their shareholders and customers”.

“We’re very pro competition, and our focus is what we’re doing with our customers,” he said. “Our digital transformation does improve our cost-income ratio quite materially, which means we’re able to be competitive going forward.”

Bank of Queensland shareholders will receive a fully franked dividend of 24 cents per share in November, an increase of 9 per cent on the first half of 2022.

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