BOQ warns of bad loan growth as COVID deferrals loom

Bank of Queensland has warned of considerable economic uncertainty after it updated the market of an additional $112m in loans 90+ days past due.

BoQ is the first cab off the rank in what will likely be a series of warnings from Australia’s banks on loan deferrals. Picture: Bloomberg

Bank of Queensland says bad loans are growing, warning in a market update on Friday of an additional $112m in loans 90-plus days past due.

BoQ’s update included $58m of customer loans where banking relief package applications had been processed after May 31.

The remaining $54m increase related to customers who had not elected to enter into a relief package or who were ineligible to apply.

Before the relief measures rolled out at the beginning of the pandemic, many of these loans would be considered non-performing.

BoQ has taken a further collective provision of $61m during the third quarter, bringing total COVID-19-related collective provision to $71m.

“There remains considerable economic uncertainty and BoQ will continue to monitor the impacts of COVID-19 on the portfolio and the collective provision prior to finalising our year end position,” the bank said.

BoQ’s total tier 1 capital (CET1), a common measure of a bank’s health, fell during the May quarter from 9.9 per cent to 9.8 per cent.

This follows the bank deferring its FY20 interim dividend in April after instructions from the Australian Prudential Regulation Authority.

BoQ warned early this month it was upping engagement with customers to see whether some of its 5000 customers who had deferred their loans could start payments.

Friday’s announcement saw BoQ’s shares fall 3.89 per cent by the close of trading.

BoQ is the first cab off the rank in what will likely be a series of warnings from Australia’s banks on loan deferrals.

The payments pause on loans is set to end in September in line with the initially forecast wind-up of federal income support relief. Borrowers who continue to experience reduced incomes and financial difficulties can apply for an additional four months, meaning those who applied to defer their loans in March will hit a wall in January next year.

Borrowers may be able to extend their loans, convert them to interest-only payments, consolidate debts or a combination of the three.

Since the start of the pandemic in April, 779,458 coronavirus-affected loans had been deferred, with more than half of them mortgages, according to the Australian Banking Associa­tion.