BoQ prepares for potential ‘deferral cliff’

Bank of Queensland is upping engagement with customers to manage COVID-19 loan repayment deferrals.

Bank of Queensland head of retail Lyn McGrath. Picture: Jane Dempster/The Australian.

Bank of Queensland is upping engagement with customers to manage COVID-19 loan repayment deferrals, alongside deepening its interaction with mortgage brokers as it navigates the economic turmoil.

BoQ’s retail banking boss Lyn McGrath told The Weekend Australian while some of the bank’s 5,000 home loan customers who had deferred repayments for up to six months, had unwound the arrangements within weeks, others required longer-terms of assistance.

“It’s quite a mixed bag of people at this stage but we are absolutely committed to keeping people in their homes,” she said. “We continue to have dialogue with people.”

Ms McGrath acknowledged that banks were managing a fragile situation as repayment pauses ended in September, in line with the cessation of federal government programs such as JobKeeper and pay as you go tax relief.

“The big one for us is September,” she said.

“When you’ve got all the stimulus coming off at that time, and I’ve got no doubt the government are now having lots of discussions about how they try to smooth, what has been widely speculated to be a potential cliff. That’s the time that is everybody’s concern.”

But Ms McGrath said Australia’s economy was emerging from the pandemic crisis “a lot better” than initially feared.

“We are also seeing the bounce back in our housing (loan inquiries and applications) as well,” she added, noting activity had returned to levels seen in February.

But Bell Potter analyst TS Lim highlighted that numbers published by the banking regulator showed BoQ’s mortgage growth, across owner occupied and investment loans, was lagging the industry’s growth rate.

“System grew 0.4 per cent since March, while BoQ went backwards by 1.5 per cent and more so in investment loans,” he said.

“This probably reflects the predominantly SME (small and medium enterprise) nature of its book – with COVID-19 challenges impacting that segment more than others – and tighter lending criteria. Deposit growth was greater than system, so there’s no issue with funding.”

BoQ also has about 10,000 small and medium business customers on loan repayment deferrals. Across the banking industry the numbers are stark, with some 779,458 business and home loans on repayment pauses, amounting to $236bn.

BoQ’s chief executive George Frazis outlined a strategic plan for the regional bank in February, which aimed to boost the implementation of digital and other technologies and improve the performance of the business and retail divisions.

In its first-half accounts released in April, the business bank saw cash earnings fall 3 per cent while its retail division — including the Virgin Money and BoQ brands — posted a 17 per cent earnings reduction.

BoQ has hired AMP’s Craig Ryman, who starts this month, as its new chief information officer. He had about 24 years at AMP, including stints as operating boss and chief information officer.

Ms McGrath joined BoQ from Commonwealth Bank about two years ago and is seeking to lift the retail division’s performance, but not by cutting branches. Despite COVID-19, she believes BoQ has the “right number” of branches at 165, the lion’s share of which are owner-managed, with the remainder owned by the bank.

Ms McGrath does, though, see penetration in the mortgage broker industry as an opportunity.

“I was actually surprised at how underweight BoQ was (in brokers),” she said.

BoQ sources around 35 per cent of its mortgages from brokers, which now account for more than half of all new home loans written across the industry.

McGrath wants BoQ’s proportion at 40 per cent, with the larger share of mortgage to still be sourced through the bank’s owner-managed branches.

In December, she appointed a big name in the industry to help overhaul BoQ’s mortgage broker platform.

Kathy Cummings, a former CBA general manager who established its broker distribution channel, has already made key hires and will soon launch a new broker portal. She said the portal would allow easier access to credit policies and provide more automation in the process.

“We are well down the path of building out a stronger home loan transformation process,” Ms Cummings added.

Part of her shake-up includes adding to the list of large mortgage broking groups the bank deals with.

“We didn’t have that market reach, we only had three of the main aggregators on, so now we are stretching that out,” Ms Cummings said, noting BoQ was adding groups including PLAN, Aussie Home Loans and Mortgage Choice over coming months.

She also believes the blowout in mortgage approval times at several of the major banks would help regional players attract more customers.

“We are managing that process fairly tightly … overall there is a lot of disquiet in the broker market about the length (of time) that it’s taking with the majors.”

Ms Cummings is one of 17 life members of professional body, the Mortgage and Finance Association of Australia.