Bank of Queensland full-year profit falls just shy of market expectations

Bank of Queensland has posted a modest lift in cash earnings, just shy of expectations, as low rates crimped margins.

Bank of Queensland CEO Jon Sutton. (Image/Peter Wallis)

Bank of Queensland has seen its share price fall as much as 5 per cent after it booked a modest 1 per cent rise in cash earnings.

For the 12 months to August 31, the ASX-listed financial services group (BOQ) said it recorded a cash profit of $360 million, up 1 per cent on the prior period, while its statutory earnings lifted 6 per cent to $338m.

The figures fell shy of market expectations for a cash profit of $362.8m and statutory profit of $349.4m, although revenue of $1.12 billion was exactly in line with forecasts.

It left traders to push the group’s share price down against the market trend, with BoQ sliding 2.5 per cent to $11.17 at 11.10am (AEDT). It had fallen as much as 5 per cent in early deals as traders punished the bank’s inability to meet expectations.

The lacklustre expansion in earnings continues a trend of subdued growth in the sector as margins are put under pressure by low rates and strong competition, although BoQ’s performance was also affected by a $15m investment in its operating model.

Bank of Queensland said its closely-watched net interest margin had dipped 3 basis points through the period to 1.94 per cent, while earnings per share slid 2 per cent to 95.6c and return on equity weakened 40 basis points to 10.3 per cent.

The margin challenges picked up in the second half, with a 7 basis point reduction to 1.9 per cent, as against the first half.

“BOQ has delivered increased cash earnings after tax for the fourth consecutive year, a significant achievement in an environment of low interest rates and intense competition,” managing director Jon Sutton said.

“The bank has come a long way in recent years and we are confident that we have the right strategy in place and are well positioned for the future.”

The bank also detailed a nine basis point improvement in its tier-one capital ratio to 9 per cent as its impairment expenses came down 9 per cent to $67m, which represented 16 basis points of gross loans.

Mr Sutton said the ongoing low rates environment presented a challenge, but he believed the group had worked out an appropriate strategy to work through the challenging period.

“Expectations of lower interest rates in Australia for longer has meant a lower rate of return on capital and low cost deposits. A widening of spreads in term deposits and other liabilities also emerged alongside fierce competition for deposits and pricing for new lending,” he said.

“Given the expensive funding environment and increased competition, we slowed asset growth in the second half, following a strong period of growth in the first half.

“During this period we have focused on deposit gathering and growing in niche segments where we believe specialisation can deliver superior returns.”

The bank expects turbulence in the year ahead, ensuring a focus on cost-cutting through 2017.

“While some of the headwinds experienced over the past year may be one-off in nature, there are a number which will continue through 2017,” Mr Sutton said.

“Managing our costs in a disciplined way remains a key focus for the year ahead and this will be supported by the rollout of further efficiency initiatives and improvement in our digital capability.”

Bank of Queensland delivered a fully franked final dividend of 38c a share, in line with last year. Its full year dividends come to 76c per share, up 3 per cent on the prior year.