BOQ CEO Patrick Allaway warns of low 2024 returns amid first strike

Bank of Queensland was stung with a first strike against its 2023 pay report, as it caps a horror year marked by governance shortcomings, enforceable undertakings, leadership changes and lower profits in a challenging banking market.

BOQ CEO Patrick Allaway is flagging a 2026 recovery for returns. Picture: Jane Dempster

Bank of Queensland was stung with a first strike against its 2023 pay report, as it caps a horror year marked by governance shortcomings, enforceable undertakings, leadership changes and lower profits in a challenging banking market.

About 40 per cent of shareholders voted against the remuneration report at the bank’s annual general meeting in Brisbane, surpassing the 25 per cent required for a strike.

BOQ chairman Warwick Negus told investors the bank’s pay report was reflective of the board and executives taking accountability for the governance failures of the past, including two enforceable undertakings with the banking and cybercrime regulators.

Non-executive directors took a 20 per cent cut to base fees in the 2023 financial year, and variable remuneration for former chairman Patrick Allaway, who took over as CEO in March following the sudden departure of the growth-focused George Frazis, was cut by 60 per cent.

“While this was not originally in my plans, I accepted the CEO position because I care about BOQ, our shareholders and our people,” Mr Allaway told shareholders.

“Our strategy is addressing our core structural disadvantages and our historic failure to invest in addressing legacy issues which are impacting our current relative performance in this more challenged margin and higher interest rate environment,” he said.

“I feel a sense of responsibility and accountability to see this through, and agree it was the best decision for the bank. I am committed to doing everything that I can to make BOQ a better bank.”

Mr Allaway’s pay totalled $1.25m, according to its annual report. Only about 2 per cent of his statutory pay was “performance based”.

Shares in BOQ have lost 21 per cent of their value since its last AGM. They are down slightly to $5.63 in Tuesday afternoon trade amid broader sector falls.

If the bank gets a second strike at the next annual meeting, it could lead to a board spill motion.

“We recognise this has been a difficult year for our shareholders, with our leadership changes, enforceable undertakings, decline in statutory earnings and poor share price performance,” Mr Allaway said.

He warned low returns will prevail in 2024 as it caps a horror year amid escalating inflation and thinner margins.

In his address to the AGM, Mr Allaway said that even in the current challenging environment, the bank would have to keep investing to strengthen the bank.

He remained committed to the bank’s digitisation strategy and to fix compliance issues, he said.

BOQ’s annual earnings until the end of August fell 8 per cent, impacted by lower margins, goodwill impairments, integration costs, and higher capital requirements imposed by the banking regulator for material “weaknesses” in its risk management practices and risk culture.

The result – unveiled in October – capped off a horror year for the lender, which also faced stiff headwinds in the mortgage market, including intense competition and higher funding costs.

APRA latest banking statistics show BOQ’s mortgage book shrunk by 1 per cent in October.

“We have a clear plan to strengthen BOQ and address our structural challenges, which are more exacerbated in the current environment, and we are making good progress executing against the plan,” Mr Allaway said.

“This plan requires continued investment in the business through this current cycle of cost and margin headwinds. As such, lower returns are likely in FY24 while we position BOQ for recovery in FY25 and (financial year) 26.”

Mr Alloway said the bank was expecting ongoing revenue and margin pressures from slower credit growth, heightened competition and its “higher relative cost of funding”. The bank’s simplification program would offset cost inflation only partially and its growing regulatory impost would add to the single-digit growth it expects.

“We recognise that our shareholders have lost value in their investment and that an investment in BOQ requires patient trust in the management team to deliver,” Mr Allaway said. We take this responsibility very seriously and are being transparent about our challenges and are getting on with addressing them.”