Australia ‘well placed for recovery’

Bank of Queensland chief executive George Frazis is optimistic Australia will recover well from the virus-induced hit to the economy.

Bank of Queensland’s George Frazis. Picture: Britta Campion

Bank of Queensland chief executive George Frazis is optimistic Australia will recover well from the coronavirus-induced hit to the economy, but has warned of a sharp decline in activity and higher unemployment in the near term.

While Mr Frazis has endured several market corrections and severe dislocation in his almost 20 years in banking, this time it is different.

“This is extremely unique. If you think about the speed of how the situation has changed over the last week and a half it’s really quite incredible,” he said in an interview. “We’ve had an immediate shock.”

The Brisbane-based bank and Mr Frazis were quick to put contingency plans in place ahead of most, early this month when one of BoQ’s non-executive directors contracted COVID-19 while in the US and attended a bank board meeting. That director is on the path to recovery, according to Mr Frazis.

“It was a mild case of those symptoms which we were really fortunate on,” he said.

Members of the board and several of BoQ’s executives, Mr Frazis included, were also tested for the virus and self-isolated for the required time, but returned negative results.

As businesses and mortgagees seek assistance and repayment pauses, BoQ is looking to add temporary staff to help in branches and call centres. The bank is in talks with an airline about filling some of those roles.

With $189bn in stimulus being announced already by the federal government and regulators to cushion the virus impact on businesses and employees, Mr Frazis is confident Australia can weather the economic storm despite a near-term hit.

“Good companies will fall over and there will be pain. Unemployment will rise and no one really knows how much (stimulus) is required,” Mr Frazis said.

“But both the government and the Reserve Bank have shown they will do everything that’s required to get us through ... on to the bridge to the other side.

“When we do get through this position (which could take six months), the uptick and the turnaround will be quite strong.”

Mr Frazis’s optimism centres on the position of the Australian economy, government finances and bank balance sheets ahead of the crisis emerging.

He said BoQ was “well positioned” from a funding and capital position, particularly because it had raised almost $340m from investors late last year.

“Our capital ratios are closer to 10 per cent, so it’s a very strong position and all of our liquidity metrics are strong so in that sense we are in a really good position,” Mr Frazis added.

“Funding markets are dislocated somewhat and will continue to be … The RBA have provided bank funding at a low rate of 0.25 per cent and that’s a huge positive step.”

He also said the banking regulator’s loosening of capital requirements and flexibility around the capital treatment of borrower loans on a repayment pause, would help banks navigate the challenging period.

The RBA has introduced a $90bn funding facility for banks and the government will guarantee 50 per cent of unsecured bank loans of up to $250,000 under a new scheme for small and medium businesses.

Mr Frazis said BoQ was open for business and would be in close contact with its customers, including medical professionals within its BoQ specialist division. It is giving mortgage customers affected by COVID-19 a three-month repayment pause with an additional three months available on review.

But unlike the major banks, BoQ is yet to respond to the RBA’s emergency rate cut last week, its fifth reduction since June. The large banks all cut interest rates for small business loans and fixed mortgages, with ANZ also reducing variable home loan rates.

BoQ passed on the RBA’s first March 25 basis-point cut to investors and those with interest-only loans, but only granted 17 basis points to owner occupiers paying principal and interest. Suncorp on Monday reduced some business loan rates and dropped rates on fixed mortgages.

BoQ’s stock plummeted 12.8 per cent on Monday to $4.85. Of the 16 analysts that cover the stock, just two have “buy” ratings while 11 recommend it as a “hold” and three a “sell”.