BOQ says more mortgage pain ahead for customers

The bank has capped off a horror year after announcing a 70 per cent slide in profit amid higher restructuring costs, regulatory action and pressure on mortgage margins

Bank of Queensland predicts more hardship for its customers as a mortgage crunch and cost of living pressures continue into next year.

BOQ chief executive Patrick Allaway said that while the overall Australian economy remained resilient, supported by low unemployment and strong cash savings, interest rates were “likely to stay high for longer.”

‘You have got to anticipate stress on the economy given the series of interest rate hikes,” said Mr Allaway as he announced profit at the 149-year-old lender had slumped 70 per cent. “Our customers are likely to experience further cost of living hardships going into 2024 but we are there to support them. Interest rates are likely to stay higher for longer.”

BOQ is seeing an increase in arrears and financial hardship requests, which was expected given the interest rate cycle and inflationary pressures. The bank had approved 3694 financial difficulty applications but arrears and hardship volumes were stabilising.

BOQ capped off a horror year with a slide in annual profit as it fell foul of regulators and faced stiff headwinds in mortgages.

The lender reported profit for the year of $124m impacted by goodwill impairments, integration costs and higher capital requirements imposed by the banking regulator.

Mr Allaway said the lender recognised it had been a difficult year for shareholders and “took accountability for the operational risk failings.”

“Our results reflect the market cycle and the business in transformation,” said Mr Allaway. “We have high conviction in our strategy and a clear road map in place to deliver a stronger, simpler, digitally enabled, low-cost bank with exceptional customer experience. Our increased financial resilience and higher liquidity allowed us to navigate the period.”

The company declared a second half dividend of 21 cents per share, bringing the full-year dividend to 41 cents. The shares slumped 7.1 per cent to $5.35.

Bank of Queensland boss Patrick Allaway.

Mr Allaway, the former chairman who took the top job in March after the departure of George Frazis, said the bank was managing “what we can control in current market conditions” and positioning for recovery when the cycle turned. Citi described the result as “very weak” and that management will have a tough task in building credibility.

Mr Frazis parted ways with the 149-year-old bank last December amid the board’s plan to change the bank’s strategic priorities. Mr Allaway led the BOQ board that ended Mr Frazis’s employment after deciding he was not the right fit. Despite a global search for Mr Frazis’s replacement, Mr Allaway in the end won the job.

BOQ announced last month it would take a hit to full-year earnings as it slashes 250 jobs to streamline operations, upgrade systems and complete the integration of online lender ME Bank, which it bought two years ago.

The Australian Prudential Regulation Authority in June said it would require the Brisbane-based bank to set aside an additional $50m as well as improve its risk management and compliance with anti-money laundering and counter-terrorism financing laws.

BOQ said both the lending and deposit markets remain highly competitive amid a string of interest rate hikes. The bank’s mortgage lending portfolio had contracted 1 per cent as pressures on the market persisted through the year. But the group achieved $3.1bn growth in retail deposits, which provided a lower cost and more diversified funding source.

Bank of Queensland faces some financial headwinds.

Cash earnings fell 8 per cent to $450m for the year with the result impacted by a $200m impairment of goodwill, $57m in integration costs for ME Bank and a $42m provision for its remedial action plans. BOQ said it had undertaken a group-wide review of its operating model that had focused on addressing the bank’s complex operating structure and operating costs.

Mr Allaway said the integration of ME Bank was complete, with the brand set to become BOQ’s first fully-digital operation. “It was a good investment and has given us broader geographical scope,” he said. BOQ purchased ME Bank in 2021 for $1.32bn. ME was formed in the 1990s as a “digital bank” with no physical branches.